25 Jul

Could Altria’s Q2 Results Boost Its Stock Price?

WRITTEN BY Rajiv Nanjapla

Altria Group (MO) is set to report its second-quarter earnings before the market opens on July 30. In the quarter, analysts expect the company’s revenue and EPS to rise.

Could Altria’s Q2 Results Boost Its Stock Price?

Revenue expected to rise

In the second quarter, analysts expect Altria’s revenue to rise 4.2% YoY (year-over-year) to $5.09 billion. The company has been focusing on expanding its products, packaging, and digital loyalty program to drive sales. Pricing could boost the company’s revenue during the quarter.

After receiving a favorable response to Marlboro Ice’s and Marlboro Smooth’s resealable packing, Altria has extended the technology to other products. The company launched Marlboro Smooth Ice in resealable packaging across the US in April. To boost digital engagement and customer loyalty, Altria launched Marlboro Rewards across the US in January. By the end of the first quarter, 1.6 million smokers had enrolled in the program.

However, declines in cigarette shipment volumes could offset some of the increases in the company’s revenue. CNBC reports that US cigarette sales fell 11.2% in volume and 6.9% in value in the four weeks ended May 18.

Could Altria’s Q2 Results Boost Its Stock Price?

What could drive Altria’s EPS?

In the second quarter, analysts expect Altria’s adjusted EPS to rise 8.9% YoY to $1.10 from $1.01. Revenue growth, EBIT margin expansion, and stock repurchases could drive this growth. They forecast Altria’s EBIT margin improving YoY from 49.7% to 54.8%, driven by favorable pricing and cost reductions.

Between the beginning of Q3 2018 and the end of Q1 2019, the company repurchased roughly 15.1 million shares for about $878.6 million. At the end of the first quarter, Altria had the authorization to repurchase about $195.0 million in stock.

However, a higher effective tax rate and interest expenses could limit Altria’s EPS growth. In the second quarter, analysts expect the company’s effective tax rate to rise YoY to 23.9% from 23.0%. Its acquisition of stakes in Cronos Group and JUUL could increase its interest expenses.

Outlook

This year, Altria expects its diluted EPS to rise 4%–7% YoY to $4.15–$4.27 from $3.99. The company projects the domestic cigarette industry’s volumes to fall 4%–5%. It expects its effective tax to rise YoY to 23.5%–24.5% from 23.1%.

Could Altria’s Q2 Results Boost Its Stock Price?

Stock performance

Since Altria announced its first-quarter results on April 25, its stock has fallen 9.0% to $49.78. The stock has been dragged down by Altria’s lower-than-expected Q1 results and core business decline. In the first quarter, Altria’s adjusted EPS of $0.90 missed analysts’ estimate of $0.92, and its revenue of $4.39 billion missed analysts’ expectation of $4.59 billion. Nielsen data also suggests that cigarette sales will fall more than Altria has guided for this year.

Altria stock has returned 0.8% this year, underperforming broader equity markets. Meanwhile, the S&P 500 has risen 20.5%, and peers Philip Morris International (PM) and British American Tobacco have returned 27.4% and 17.0%, respectively.

Altria’s valuation

Altria’s forward PE multiple has also fallen since the company announced its first-quarter earnings on April 25, to 11.5x from 12.8x. Its forward PE multiple is lower than Philip Morris’s 15.6x.

On Wednesday, Altria was trading at 11.9 times analysts’ 2019 EPS estimate of $4.19, and at 11.1 times analysts’ 2020 EPS estimate of $4.48. Analysts expect the company’s EPS to rise 5.0% this year, and 7.0% in 2020.

Could Altria’s Q2 Results Boost Its Stock Price?

Analysts’ recommendations

Of the 16 analysts covering Altria stock, most (56.3%) recommend “buy.” Their average 12-month price target of $58.27 for the stock implies a 17.1% upside from its current price of $49.78. On July 12, Goldman Sachs upgraded the stock from “neutral” to “buy” and kept its price target at $59.

Altria’s peer, Philip Morris, reported better-than-expected second-quarter earnings on July 18. To learn more, read Philip Morris Rises over 8% after Its Impressive Q2 Results.

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