Altria Group (MO) is scheduled to post its fourth-quarter earnings before the market opens on January 31. As of January 25, Altria was trading at $44.24, which represents a fall of 29.0% since the announcement of its third-quarter earnings on October 25. The company is trading close to its 52-week low of $42.85.
A decline in stock price
The decline in the smoking population has accelerated in the last few years. Altria’s shipment volume of smokeable products has also declined. To combat declining sales, Altria has divested its business by investing in Cronos Group, a Canadian cannabis company, and Juul, an e-cigarette company.
On December 7, Altria announced that it had invested $1.8 billion in Cronos Group (CRON) for a 45% stake in the company, which could increase 10% over the next four years with the excise of the warrant at a price of 19.00 Canadian dollars per share. On December 20, Altria announced a $12.8 billion investment in Juul Labs for a 35% stake in the e-cigarette company. At a valuation of $38 billion, Juul Labs is one of the most valuable private companies. In July, Reuters reported that Juul was valued at ~$16 billion in the private funding round. Investors are concerned that Altria has paid more for the stake in Juul. The FDA is looking at restricting the sale of some flavored Juul products in convenience stores and gas stations to reduce underage usage of e-cigarettes.
Earlier, on November 15, the FDA announced that as part of its efforts to curb smoking among young people, the agency would advance rules to ban menthol-flavored cigarettes and cigars. Bloomberg estimated that menthol cigarettes account for 20% of Altria’s profits. The ban could dent Altria’s earnings significantly. Along with these factors, the downgrade of the stock by Morgan Stanley, Cowen, and Citigroup have also contributed to the fall in the company’s stock price.
After falling 30.8% in 2018, Altria’s stock continued to fall in 2019. YTD (year-to-date), the company’s stock has declined by 10.4%. In comparison, its peers Philip Morris International (PM) and British American Tobacco (BTI) have returned 8.9% and -1.4% YTD, 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 returned 1.9%.
With Altria’s fourth-quarter earnings around the corner, we’ll look at analysts’ revenue and EPS expectations. We’ll also cover Altria’s valuation multiple and analysts’ recommendations. First, let’s look at analysts’ revenue expectations for the fourth quarter.