Altria (NYSE:MO) is being sized up after announcing on Tuesday that it has entered into a non-binding memorandum of understanding with KT&G to expand nicotine pouches.
Notably, KT&G Corporation is South Korea’s leading tobacco company. KT&G’s principal businesses include the production, distribution, and sale of tobacco products both in South Korea and globally. It manufactures popular cigarette brands like The One, Esse, Raison, and Pine, and has expanded internationally, especially with superslim brands in Eastern Europe and Russia.
On Wall Street, Goldman Sachs analyst Bonnie Herzog and her team view the announcement as a strategic positive for Altria Group (NYSE:MO) as it aligns with the company’s goal to pursue adjacent growth opportunities in the international smoke-free products market and non-nicotine products over the long term.
Herzog noted that the deal provides the company an alternate source of revenue and profits, as well as being 100% incremental to the current business, with no risk of cannibalization.
Goldman Sachs reiterated its Buy rating on MO on its view that the company can sustain ~4% EPS growth annually over the next decade, driven by low single-digit profit growth in the smokeable business, low single-digit profit growth in the oral tobacco business, and a robust buyback program.
“Further, we believe today’s announcement suggests potential upside to our estimates via international expansion over the long term. Ultimately, we continue to see a favorable risk/reward with limited downside risk given MO’s strong underlying FCF, lack of FX exposure/limited tariff risk, attractive valuation, optionality with ABI, strong balance sheet with a focus on shareholder returns, and attractive dividend yield,” wrote Herzog on the upside for MO. The firm has a 12-month price target on MO of $65, based on an equal-weighted P/E multiple of 11.4X and an EV/EBITDA multiple of 9.0X.
Shares of Altria (MO) gained 1.6% on Tuesday following the announcement.