Citigroup Has Rated Altria Group a ‘Buy’

Altria Group (MO) has a market cap of $129.7 billion. It fell 1.7% to close at $63.55 per share on September 13, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -5.4%, -4.8%, and 11.1%, respectively, on the same day.

MO is trading 3.9% below its 20-day moving average, 5.6% below its 50-day moving average, and 1.8% above its 200-day moving average.

The PowerShares High Yield Equity Dividend Achievers ETF (PEY) invests 2.1% of its holdings in Altria Group. The ETF aims to track a yield-weighted index of US companies that have increased their annual dividends for at least ten consecutive years. The YTD price movement of PEY was 17.7% on September 13, 2016.

The market caps of Altria Group’s competitors are as follows:

• Philip Morris International (PM): $159.4 billion
• British American Tobacco (BTI): $119.6 billion
• Reynolds American (RAI): $71.6 billion

Citigroup has initiated coverage of Altria Group with a “buy” rating.

Altria Group reported 2Q16 net revenue of $6.5 billion, a fall of 1.5% from $6.6 billion in 2Q15. Net revenue from smokable products fell 3.3%, and net revenue from smokeless products and wine rose 8.7% and 6.2%, respectively, between 2Q15 and 2Q16.

The company’s gross profit margin and operating income rose 5.0% and 9.1%, respectively. It reported a gain on the derivative financial instrument of $117.0 million in 2Q16.

Its net income and EPS (earnings per share) rose to $1.7 billion and $0.84, respectively, in 2Q16 compared to $1.4 billion and $0.74, respectively, in 2Q15. It reported adjusted EPS of $0.81 in 2Q16, a rise of 9.5% from 2Q15.

Altria’s cash and cash equivalents and inventories fell 65.4% and 3.0%, respectively, between 4Q15 and 2Q16. Its debt-to-equity ratio fell to 4.1x in 2Q16 compared to 4.5x in 4Q15.

During 2Q16, the company repurchased 2.7 million shares worth $173 million at an average price of $64.06 per share. On June 30, 2016, it had ~$624 million in shares remaining under its current share repurchase program.

Altria Group has declared a regular quarterly dividend of $0.61 per share, an increase of 8.0%, on its common stock. The dividend will be paid on October 11, 2016, to shareholders of record on September 15, 2016.

At the Barclays Global Consumer Staples Conference, Altria Group (MO) reaffirmed the following projections for fiscal 2016:

• adjusted EPS of $3.01–$3.07, which doesn’t include the impact from the Anheuser-Busch InBev–SABMiller business combination
• effective tax rate of ~35.3%

In the next part of this series, we’ll look at PACCAR (PCAR).