Altria: Don’t be Fooled by Q3 Timing Effects
Company Update (MO US) (Neutral): Shares bounced 7.8% today, on results arguably worse than last quarter’s; P/E now exceeds 10x.
Highlights
Cigarette volume fell “only” 8.6% in Q3, but 11.5% adjusted, worse than Q2.
Smokeable profit growth of 7.1% benefited from timing and other one-offs.
NJOY is still subscale, growth of on! offset by declines in traditional products.
EPS growth was helped by buybacks partly funded by one-off ABI stake sale.
At $54.46, P/E is ~10.5x and Dividend Yield is 7.5%, but there is a risk of loss.
Introduction
Altria reported Q3 2024 results this morning (October 31). Shares finished the day up 7.8%:
Altria Share Price (Last 5 Years)
Source: Google Finance (31-Oct-24).
We downgraded our rating on Altria to Neutral in April. This was a mistake, as Altria shares have since gained 29.7% (including dividends) in a sector-wide rally, though we have made a larger 40.9% gain than this from Philip Morris, which has been a top-5 position in our “Select 15” model portfolio and has been Buy-rated since June 2019.
We believe the Tobacco industry is being disrupted by Reduced Risk Products and Altria will end up with a much lower share of the profit pool. Q3 results are consistent with this and no better than Q2, once timing effects are excluded.
(The rest of this article is for paid subscribers only, but unlocking it costs just $10; you can see a free sample of our research here.)