Stock Sonar #35 - 12/13/2023

Altria (NYSE:MO) — mrkt cap $73B; Price $41.2; EV/EBITDA 7.1

PASS. Altria has remained focused on the U.S. market since its spin-off of Phillip Morris International. Volume of cigarettes seemed to stabilize during COVID but has since continued the decline we have seen in recent years. Marlboro volume sales are down from 83 billion sticks sold in 2021 to 75 billion last year. Unsurprisingly, this is an industry-wide phenomenon, and as a result, tobacco companies have increased prices over 30% since pre-COVID levels. Largely because of this, revenue, net of excise tax, has remained stable. Altria’s risks are well-known, and the company is under constant regulatory threat. The company has tried several times to expand outside of cigarettes but has been largely unsuccessful (about 10% of revenue is from non-smokable products). We believe that at some point fears may be overblown, but the company’s well-covered approximately 10% dividend yield is not enough to attract us.

Sally Beauty Holdings (NYSE:SBH) — mrkt cap $1.23B; Price $11.57; EV/EBITDA 4.9

MORE RESEARCH NEEDED. SBH is a beauty retail store with roughly 3000 stores worldwide. We originally discussed SBH in September and passed on the name due to uncertainty surrounding turnaround investments the company was making in concept stores. The company has since grown SSS and is right-sizing its footprint through cost-cutting (closing roughly 350 stores). Bears believe that strong competitors like Ulta and Sephora are a threat, but Sally operates in a differentiated segment of the market more geared towards hair products and professional beauty supplies. We believe they are a highly differentiated retailer that sells proprietary products at scale, and we will continue researching the name.

Diageo (LSE:DGE) — mrkt cap £63B; Price £28.01; EV/EBITDA 14

MORE RESEARCH NEEDED. Diageo is the world leader in premier spirits, owning brands such as Johnnie Walker, Guiness, and Casamigos. Diageo’s vast ownership of brands and distribution allow it to acquire emerging premier brands and then leverage its distribution to push the product globally. This combination has made it a dominant force with enormous latent pricing power. Diageo has recently undergone a CEO change due to the death of the previous CEO. Diageo is trading at a lofty multiple so we will wait for a pullback to initiate a starter as well as continue to monitor the company for any strategy and capital allocation decisions.

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