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Altria’s Growth Prospects and Valuation

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This year, Altria Group (MO) expects its adjusted EPS to grow 4%–7% YoY (year-over-year) to $4.15–$4.27 from $3.99. Meanwhile, analysts expect the company’s revenue to rise 0.8% YoY to $19.79 billion from $18.85 billion, driven by favorable pricing.

Altria is investing in product expansion, innovative packaging, and loyalty programs to drive its sales. In April, the company expanded Marlboro Smooth Ice with a resealable pack across the US. The product is now available in over 113,000 retail stores.

Altria also launched Marlboro Rewards across the US in January. The reward program has resonated well with customers, with enrollments surpassing 2 million earlier this month. Furthermore, Nat Sherman expanded Nat’s across 50 states during the second quarter.

In June, Altria announced it was adding to its smokeless segment. It acquired an 80% stake in Burger Söhne Holding, which commercializes “on!” oral tobacco-derived nicotine pouches. In April, the FDA authorized the commercialization of Philip Morris’s heated tobacco unit, IQOS. Altria has exclusive rights to market the product in the US. The company has identified Atlanta as the launch market and will be opening its first store there in September. Initially, the company plans to distribute HeatSticks from approximately 500 stores.

Expanding JUUL’s market share

Sensing growing interest in e-vaping, Altria has invested $12.8 billion in JUUL Labs for a 35% stake in the company. Altria estimates the number of adult vapers grew from 12.2 million at the end of last year to 13.8 million in June. The e-vape category is estimated to have grown roughly 40% in the first half of this year, while JUUL’s market share grew from 44% in the first quarter to 48% in the second quarter.

Internationally, JUUL continues to expand. In the second quarter, the company launched products in Ireland, South Korea, Austria, and the Philippines. The company also plans to enter more new markets this year. However, JUUL has been facing criticism from critics, who have blamed the company for an increase in teen vaping.

Altria’s valuation

Altria stock fell 3.6% after the company reported its second-quarter results, lowering its valuation multiple. As of yesterday, the company’s forward PE multiple was 11.1x, compared with 11.6x before its second-quarter announcement. Peer Philip Morris had a higher forward PE multiple of 15.8x that day.

Altria has been trading at 11.6 times analysts’ 2019 EPS estimate of $4.19, and 10.8 times their 2020 EPS estimate of $4.49. They expect the company’s EPS to rise by 4.9% this year and 7.4% in 2020.

Analysts’ recommendations

After Altria reported its second-quarter results, Cowen and Company cut its price target from $53 to $49. Analysts’ average price target of $58.07 for Altria implies a 19.7% upside. Most (56.3%) of the 16 analysts covering Altria recommend “buy.”

Philip Morris reported its second-quarter results on July 18. To learn more, read Philip Morris Raises EPS Guidance After Impressive Q2.

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