MO or PM: Which Tobacco Giant Offers Better Value in 2025?

Globe and Mail

26-06-2025

For investors looking at the tobacco sector in 2025, the choice often comes down to two giants — Altria Group, Inc. MO and Philip Morris International Inc. PM. Though both companies share a common origin, their business strategies have diverged. Altria remains a U.S.-focused powerhouse, relying on its strong cigarette portfolio while gradually expanding into next-generation products. In contrast, Philip Morris is leading the global charge toward reduced-risk products (RRPs), with successful innovations like IQOS and ZYN.
While Philip Morris is widely viewed as the growth leader, Altria offers compelling value through its high dividend yield, attractive valuation and growing traction in RRPs — making it a strong contender for income-focused investors and bargain hunters.
The Case for Philip Morris
Philip Morris is at the forefront of the tobacco industry's shift toward a smoke-free future. Its flagship heat-not-burn product, IQOS, has become a cornerstone of this transformation, gaining strong traction in key international markets. IQOS offers adult smokers an alternative to traditional cigarettes, aligning with global trends toward harm reduction. Its success has not only driven volume growth but also helped Philip Morris solidify its position as a leader in the global RRP segment.
The company further expanded its smoke-free portfolio with the acquisition of Swedish Match in 2022, bringing the popular ZYN nicotine pouches under its umbrella. This move gave Philip Morris a strong presence in the fast-growing oral nicotine market and created a more complete RRP ecosystem that spans both inhalable and non-inhalable products. In the first quarter of 2025, smoke-free products contributed 42% of total revenues and 44% of gross profit, highlighting their growing contribution to the business. IQOS and ZYN continued to gain market share, driving 15% year-over-year revenue growth in the smoke-free segment.
At the same time, Philip Morris has managed to sustain growth in its traditional tobacco segment, reporting 3.8% organic revenue growth in combustibles in the first quarter. This balance between legacy product strength and forward-looking innovation underscores the company's ability to execute a dual-track strategy. Furthermore, its diversified global footprint allows PM to tap into new markets.
However, this global strategy is not without risks. The company is exposed to currency volatility, which weighed on first-quarter results, including a 7-cent hit to adjusted earnings per share (EPS) from foreign exchange losses. Additionally, governments around the world are imposing stricter regulations on nicotine products, including marketing restrictions on pouches and further scrutiny of heated tobacco devices. Philip Morris' strong lead in RRPs sets high expectations, but any regulatory hurdles or changes in consumer trends could slow its growth trajectory.
One-Year Price Performance
The Case for Altria
Altria continues to prove its resilience in the face of declining cigarette volumes, thanks largely to its strong pricing power. In the first quarter of 2025, the company's ability to raise prices helped offset shipment declines across both the Smokeable and Oral Tobacco segments. Historically, Altria has relied on pricing as a tool to maintain profitability, and that strategy remains effective even as consumption trends shift. As cigarette demand tends to be inelastic, the company can continue to drive margins despite lower volumes. With projected adjusted earnings per share ranging between $5.30 and $5.45 for 2025, indicating up to 5% year-over-year growth, Altria provides consistent earnings visibility alongside a dividend yield exceeding 6.5%, making it particularly attractive to value and income-focused investors.
Altria is also making steady progress in its smoke-free future strategy, which is critical as consumer preferences evolve. Its wholly owned subsidiary, Helix Innovations, is expanding the reach of on!, a tobacco-derived nicotine pouch product that is quickly gaining traction in the U.S. market. In the first quarter of 2025, shipments of on! grew 18% year over year to over 39 million cans. The product's share of the oral tobacco category rose to 8.8%, and it captured 17.9% of the nicotine pouch market, despite higher retail pricing. This performance reflects the strength of the brand and growing consumer acceptance.
Following its 2023 acquisition of NJOY, Altria has entered the e-vapor category with a clear commitment to product quality and regulatory compliance. While a recent regulatory ruling led to the market exit of NJOY ACE, management views this challenge as an opportunity to rethink its vapor portfolio and relaunch with a stronger, more innovative lineup tailored for adult consumers. By focusing on a fully regulated market and leveraging NJOY's R&D capabilities, Altria aims to carve out a durable position in a category.
To accelerate its strategic goals and improve efficiency, Altria has introduced a company-wide transformation initiative called Optimize & Accelerate. Savings from this will be reinvested to support its long-term vision and 2028 enterprise goals. Meanwhile, the company continues to closely monitor macroeconomic pressures, evolving consumer behavior, illicit vapor enforcement, and shifting regulations. Despite these challenges, Altria remains a fundamentally sound investment with strong cash flow, pricing power, a growing presence in RRPs, and a commitment to delivering shareholder returns, making it a stock worth considering in 2025.
How Does the Zacks Consensus Estimate Compare for PM & MO?
The Zacks Consensus Estimate for Philip Morris' 2025 EPS has remained unchanged over the last 30 days at $7.47. In comparison, the consensus EPS estimate for Altria has moved up by 2 cents to $5.37 during the same period. Altria's upward EPS revision signals improving sentiment, while Philip Morris' steady estimate suggests stable but fully priced expectations.
Valuation & Price Performance of PM & MO
When it comes to valuation, Philip Morris trades at a forward 12-month P/E of 22.76x, reflecting investors' willingness to pay a premium for its global footprint and smoke-free momentum. Altria, on the other hand, trades at a significantly lower multiple of 10.79x, making it more attractive from a value perspective, especially for income-focused investors seeking high-yield, stable earnings in a mature market.
Stock performance over the past year further highlights the divergence between the two companies. Philip Morris has delivered an impressive 76.1% gain, far outpacing Altria's 27.1% and the broader S&P 500's 10.8% return. This strong rally suggests heightened investor confidence in PM, though it may also limit near-term upside.
Investor Takeaway: Altria vs. Philip Morris in 2025
Both Altria and Philip Morris offer unique strengths for investors in 2025. Philip Morris stands out for its global leadership in RRPs, innovation in heated tobacco and strong stock performance. However, much of its transformation success appears priced in, and ongoing regulatory and currency risks could pose challenges. Altria, while being more U.S.-focused and facing cigarette volume pressures, presents a compelling value story. With a lower valuation, improving traction in smoke-free products like on! and room for vapor category re-entry, Altria offers more upside potential for value and income-oriented investors seeking growth.
MO currently has a Zacks Rank #2 (Buy), while PM carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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