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Correction in Altria’s Stock Price: A Buying Opportunity?

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Stock performance

As of November 21, Altria Group (MO) was trading at $54.39, which represents a fall of 12.7% since the announcement of its third-quarter earnings on October 25. Currently, the company is trading 0.9% higher than its 52-week low of $53.91 and 26.9% lower than its 52-week high of $74.38.

In the third quarter, which ended on September 30, Altria posted an adjusted EPS of $1.08 on revenues (net of excise tax) of $5.29 billion. Altria outperformed analysts’ EPS expectation of $1.07 and revenue expectation of $5.22 billion. The better-than-expected third-quarter earnings caused the company’s stock price to rise to a high of $66.04 on November 9.

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On November 9, the Wall Street Journal reported that the FDA could propose a ban on menthol cigarettes next week. The report led to a fall in the company’s stock price. In a statement on November 15, the FDA announced that in its efforts to curb smoking among young people, the agency would advance rules to ban menthol-flavored cigarettes and cigars. Investors are worried that the ban could dent Altria’s earnings. Menthol products form a significant part of the company’s profits. Bloomberg estimated that menthol cigarettes account for 20% of Altria’s profits.

Year-to-date performance

In 2018, increased anti-tobacco regulations and the declining smoking population have been putting pressure on tobacco companies. Altria’s stock price has declined 23.8% YTD (year-to-date). During the same period, Philip Morris International (PM) and British American Tobacco’s (BTI) stock prices declined 20.5% and 48.4%, respectively. The Consumer Staples Select Sector SPDR ETF’s (XLP) stock price, which has invested 12.0% of its portfolio in cigarettes and tobacco companies, has declined 4.0% YTD.

Series overview

In this series, we’ll discuss analysts’ revenue and EPS expectations for the next four quarters. We’ll also discuss Altria’s valuation multiple and analysts’ recommendations. First, we’ll discuss analysts’ revenue expectations for the next four quarters.

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