Altria: Why Investors Should Look Past Q2 Revenue And Profit Decline

(Preview) Company Update (MO US) (Buy)

Summary

• Altria saw declines in both its revenues and operating income in Q2 as macro headwinds led to an 11% drop in its cigarette volume.

• However, the results were made worse by some one-off items, and Altria reiterated its outlook for a 4-7% EPS growth in 2022.

• Underlying trends in the U.S. cigarettes business are stable, and recent FDA actions on e-vapor can benefit Altria earnings.

• We expect a stable U.S. cigarette market. Altria can now free itself to compete in e-vapor, and struggling Oral Tobacco segment is small.

• At $44, Altria has a 9x P/E and an 8.2% Dividend Yield. We expect a total return of 74% (20.0% annualized) by 2025 year-end. Buy.

Introduction

Altria Group, Inc. released Q2 2022 results on Thursday morning (July 28). MO stock finished the day flattish (down 0.2%).

We upgraded our rating on Altria to Buy in February 2020. Shares currently have a gain of 11% since our upgrade, with dividends more than offsetting a 7% decline in the share price, having fallen 23% from their Apr…