Why Investors Are Optimistic about Altria’s Q3 Earnings

Stock performance

Altria (MO) is scheduled to post its third-quarter earnings before the market opens on October 25. As of October 19, the company was trading at a price of $61.95, which represents a rise of 7.1% since the announcement of its second-quarter earnings on July 26. Altria’s stock price was positively impacted by its strong performance in the second quarter and the announcement by the FDA’s commissioner that the agency is considering a policy change that would ban flavored e-cigarette products.

Why Investors Are Optimistic about Altria’s Q3 Earnings

On September 12, Scott Gottlieb, commissioner of the FDA, announced that the accelerating trajectory of flavored e-cigarette usage among youth had reached epidemic proportions. So, the agency is considering a policy change that would ban flavored e-cigarette products. The growing popularity of e-cigarettes has had a negative impact on cigarette sales. The e-cigarette market is dominated by JUUL, which had a 72% market share as of mid-August, according to Wells Fargo analyst Bonnie Herzog. A ban on flavored e-cigarettes is considered to be favorable for Altria.

In the second quarter, Altria posted adjusted EPS (earnings per share) of $1.01 on revenue of $4.88 billion against analysts’ EPS expectation of $1.00 and revenue estimate of $5.03 billion. After posting its second-quarter earnings, the company’s management tightened its EPS guidance by raising the lower end of its 2018 guidance.

Also, the company’s stock price was positively impacted by Philip Morris International’s (PM) strong third-quarter earnings. You can read more about the company’s third-quarter performance in Strong Third-Quarter Earnings Drove Philip Morris Stock Up.

Year-to-date performance

Despite the recent surge in Altria’s stock price, the company is still trading 13.2% lower YTD (year-to-date). The increased anti-tobacco regulations and the lower total industry volume are putting pressure on the company’s stock price. During the same period, the stock price of peers Philip Morris International and British American Tobacco (BTI) have fallen by 15.9% and 35.4%, respectively. Also, the stock price of the broader comparative index, the Consumer Staples Select Sector SPDR ETF (XLP), which has invested 12.9% of its portfolio in cigarettes and tobacco companies, has declined 3.9% year-to-date.

Series overview

With Altria’s third-quarter earnings around the corner, we’ll look at analysts’ revenue and EPS expectations in this series. We will also cover management guidance and analysts’ expectations for 2018. Finally, we’ll end this series by looking at analysts’ recommendations and Altria’s valuation multiple. Let’s start by looking at analysts’ revenue expectations.