On Friday, Goldman Sachs upgraded Altria Group (MO) from a “neutral” to a “buy” while keeping its price target unchanged at $59, which implies an upside potential of 19.8% from its closing price of $49.26 on Thursday.
A disappointing first-quarter performance and concerns about the decline in traditional cigarette volumes have caused Altria stock to fall. The fall in its stock price has lowered its valuation multiple close to its ten-year low. However, Goldman Sachs expects the decline in cigarette volumes to ease in the second half of the year. Judy Hong of Goldman Sachs said, “We expect the current discount being placed on tobacco stocks to narrow as cigarette fundamentals hold up better than feared,” as reported by CNBC.
Other analysts’ recommendations
Despite Altria’s lower-than-expected first-quarter earnings, analysts are still favoring “buy” ratings on its stock. Of the 16 analysts that follow the stock, 50% have given it “buy” recommendations, while 37.5% have given it “holds,” and 12.5% are in favor of “sells.” On average, analysts have given Altria a 12-month price target of $58.33, which implies an upside potential of 18.4% from its current price of $49.26.
After Goldman Sachs’s upgrade on Friday, Altria was trading in the green. Its stock rose to a high of $50.16 and was trading at $49.55 as of 3:10 PM ET, a rise of 0.6% from Thursday’s close.
On Thursday, before Goldman Sachs’s upgrade, Altria stock was down 0.3% YTD (year-to-date). Its disappointing first-quarter earnings and shrinking core business caused its stock to fall. Also, on June 21, the former FDA commissioner announced that Juul Labs could struggle in receiving governmental approval for its products. This announcement also contributed to the fall in Altria stock.
The company has underperformed its peers and the broader equity market so far this year. During the same period, Philip Morris International (PM) and British American Tobacco (BTI) have returned 21.7% and 14.5%, respectively. The S&P 500 Index has risen 19.7%.
On Thursday, Altria was trading at 11.8 times analysts’ 2019 EPS estimate of $4.19 and 11.0 times analysts’ 2020 EPS estimate of $4.49. Its EPS are expected to rise 5.0% in 2019 and 7.2% in 2020.
Altria is scheduled to report its second-quarter earnings results on July 30. Stay tuned for an analysis of its second-quarter performance.