Altria stock (NYSE: MO) is positioned to offer better returns compared to Freeport-McMoRan stock (NYSE: FCX) in the next three years, despite being from different sectors. While Freeport-McMoRan has seen better revenue growth recently, Altria is more profitable. Both companies have a similar market capitalization of $75-$80 billion and a revenue base of $20-23 billion, yet investors have assigned a similar valuation multiple of 3.3x revenues for both stocks. In this article, we will delve into why Altria is expected to outperform Freeport-McMoRan by examining various factors such as historical revenue growth, stock returns, and valuation.
When comparing the performance of MO and FCX stocks, it is evident that FCX stock has fared better, with gains of 100% from $25 to around $50 since early January 2021, compared to a 15% increase for MO stock. However, the returns for MO stock have been inconsistent, with negative returns in 2022 and 2023, while FCX stock saw positive returns in the same years. Despite the challenges faced by individual stocks in beating the S&P 500 in recent years, the Trefis High Quality Portfolio has outperformed the benchmark index consistently. Given the current macroeconomic environment with high oil prices and elevated interest rates, it is predicted that Altria stock will perform better than Freeport-McMoRan in the next three years.
Freeport-McMoRan has demonstrated better revenue growth with an average annual growth rate of 20.3% in the last three years, compared to Altria’s -2.2% growth rate. Altria, which sells tobacco products in the U.S., faced revenue challenges during the pandemic due to supply disruptions. Despite declining cigarette volumes, pricing growth has helped offset some of the revenue losses. On the other hand, Freeport-McMoRan’s revenue growth is driven by higher copper and gold price realizations, making it one of the world’s largest producers of copper. The company reported a slight decline in average realized copper prices in 2023, while gold prices increased.
Altria stands out for its profitability, with an operating margin of 47.4% in the last twelve months, compared to 27.2% for Freeport-McMoRan. While Altria has a higher debt percentage compared to Freeport-McMoRan, it also has a slightly higher cash cushion. When considering their prospects based on P/S ratios, historical averages, and valuation multiples, it is expected that Altria will offer better returns compared to Freeport-McMoRan over the next three years. Altria currently trades at 3.3x sales, compared to the five-year average of 3.1x, while Freeport-McMoRan trades at 3.3x revenues versus the five-year average of 2.3x.
In conclusion, while Freeport-McMoRan has seen superior revenue growth and has a better debt position, Altria’s profitability and slightly higher cash cushion make it a more favorable investment option. With a more favorable valuation compared to historical averages, it is anticipated that Altria stock will outperform Freeport-McMoRan over the next three years. Investors looking for potential growth opportunities may find Altria to be a better pick over Freeport-McMoRan in the current market environment.
