Altria: When the Theatre Manager Shouts “Fire” (Q3 Results)

Company Update (MO US) (Buy)

Highlights

• Altria’s cigarette volume fell by 10% in Q3, same as last year

• Smokeable revenues and EBIT both fell in Q3

• Management now sees disposable E-vapor as a key headwind

• We cut our forecasts but retain our Buy rating due to valuation

• At $39.26, we see a 14.3% IRR, driven by the 10% Dividend Yield

Introduction

Altria reported Q3 2023 results on Thursday (October 26). Shares finished the day down 8.3%, and have now fallen 13.6% in the past year:

Altria Share Price (Last 1 Year)

Source: Google Finance (27-Oct-23).

Altria’s cigarette volume fell by another 10% year-on-year in Q3, after the same in the prior-year quarter. While part of the decline may be cyclical, management now believes E-Vapor (primarily illegal disposables) had a 1.5-2.5% impact on recent industry volumes, in a reversal of previous estimates. FDA enforcement and litigation by Tobacco companies may halt or reverse the growth of disposable e-cigarettes. However, their recent impact shows that U.S. cigarette volumes are vulnera…