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Altria Stock: Will Sluggishness End with Q3 Earnings?

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  • Altria will announce its third-quarter earnings on October 31.
  • Positive momentum is building in the stock before the third-quarter earnings. So far, the stock has risen 14% in October.

Altria stock has recovered sharply in October. Positive momentum is building in the stock before the company’s earnings. So far in October, Altria (MO) stock has risen 14%. Part of the recovery is due to Citigroup’s recent upgrade. Citigroup upgraded Altria stock to “neutral” from “sell” on October 18. Since then, the stock has risen about 6%.

What to expect from Altria

Citigroup expects the decline in Altria’s cigarette shipment volumes to moderate. The negativity surrounding vaping could drive cigarette volumes. However, in the short term, the stock could continue to take a hit from lower cigarette shipment volumes and regulatory hurdles for Juul Labs. Altria is a significant stakeholder in Juul Labs.

We think that near-term headwinds could continue to hurt the stock. Altria will announce its third-quarter earnings on October 31. In the third quarter, higher pricing will likely drive the company’s revenues. However, the revenue growth rate could decelerate sequentially. We expect that lower domestic shipment volumes, adjusted for trade inventories and other factors, could continue to decline in the third quarter.

Notably, Philip Morris (PM) reported a 5.9% drop in cigarette shipment volumes in the third quarter.

We expect higher pricing and favorable manufacturing trends to support Altria’s margins. However, promotions could hurt the company’s margins. Altria’s bottom line will likely improve on a YoY (year-over-year) basis. Favorable pricing and share repurchases will likely drive Altria’s earnings. However, higher interest expenses could limit the earnings growth rate.

Despite the recovery, Altria stock has fallen 5.3% on a YTD (year-to-date) basis. The stock offers a dividend yield of 7.2%. In contrast, Philip Morris stock has risen 22.5%. The stock has a current dividend yield of 5.7%.

Third-quarter preview

Analysts expect Altria to post revenues of $5.34 billion in the third quarter. The consensus estimates indicate a YoY growth of about 1%. The projection also implies that Altria’s revenue growth rate will likely decelerate sequentially. The company’s top line rose 6.4% in the second quarter.

Analysts expect Altria to post an adjusted EPS of $1.15 in the third quarter, which represents YoY growth of about 6%. Share repurchases will likely drive Altria’s bottom line.

In comparison, Philip Morris reported mixed third-quarter results. The company beat analysts’ EPS estimate. However, Philip Morris’s sales fell short of the expectation, which reflected lower shipment volumes.

Philip Morris’s revenues of $7.64 billion increased 1.8% YoY, which reflected increased pricing and higher shipment volumes in heated tobacco units. However, lower cigarette shipment volumes remained a drag. Philip Morris posted an adjusted EPS of $1.43, which beat analysts’ consensus estimate but fell 0.7% YoY. Higher investments behind reduced-risk products dragged the company’s margins and EPS down.

Analysts’ recommendations for Altria stock

Seven out of 15 analysts recommend a “buy,” while eight recommend “hold.” Analysts’ target price of $52.68 on Altria stock implies a potential upside of 12.7% based on its closing price of $46.75 on Wednesday.

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