Altria’s Stock Still Smoking Hot After The Brexit

While the UK’s decision to leave the European Union sent stock prices tumbling, Altria (NYSE:MO) was one of the few stocks to come out unscathed. Shares of the company even reached a record high of $68 in Friday’s trading, the day the results were announced, while most of the stocks were down. The majority of this has to do with the Brexit, as Altria only conducts domestic sales, and is hence, immune to the strengthening of the dollar, or weakening of the pound or euro. This allows Altria to outperform the market when the rise of the dollar threatens the results of companies with international operations. As can be seen below, the Dollar Index Spot ended Thursday, the day of the Brexit vote, at $93.529, and rose over 2% to $95.448 at the end of Friday, once the results were declared. It further increased to $96.544 on June 27.

There are several reasons investors would turn to Altria as a result of the turmoil in Europe. Firstly, the tobacco industry is considered as a safe haven during times of economic stress or crises. During a period of volatility, investors usually turn to resilient businesses, such as tobacco companies, due to their loyal customer base and a solid dividend income. Such companies benefit from the addictive nature of their products. With a delay in interest rate hike by the Fed in the US, such high-yield stocks are expected to become favorites with investors. Another factor going in Altria’s favor is the domestic nature of its operations. The company’s decision to spin-off its international operations seems prophetic in hindsight, due to the increased global regulations and the rising strength of the dollar, which together have hit the tobacco companies with international operations. Moreover, Altria is also a source of an assured dividend income, which is deemed important for shareholders during such periods of high volatility. Even during the 2008 financial crisis, Altria continued to boost its dividend payout, with its yield soaring to ~7%.

Altria holds a substantial minority stake in London-listed SABMiller, which could have left the company exposed to the UK rout. Yet, SABMiller’s shares have actually risen since its close on Thursday, the day of the Brexit vote. The reason for this could be that the company earns a majority of its revenue from regions outside the UK, and also since investors see the acquisition process going smoothly despite the recent events. Since Altria’s compensation, as a result of Anheuser-Busch’s acquisition of SABMiller, is mostly in the form of stock in Anheuser-Busch, the drop in the value of the pound will not have any effect, in contrast to those shareholders who are receiving cash.

However, the company isn’t exactly recession-proof, with a slight vulnerability during times of lower disposable income. The company has benefited from low gasoline prices, coupled with an improving jobs market, which have increased consumers’ spending power, aiding in the rise of its stock in the past year and a half. But, the stock can be negatively affected if the economic impact of Britain’s departure from the EU has any consequences in the US, which might hit the discretionary income of consumers.

Have more questions on Altria? Have a look at the links below:

• What Will Be Altria’s Revenue And EBITDA Breakdown In 2016?
• What Are Altria’s Strategies For Long-Term Growth?
• How Will Altria Perform In 2016?
• How Will The New FDA Ruling On E-Cigarettes Help Altria?
• What Is The State Of The Vapor Market In The U.S.?
• How Did The Different Segments Of Altria Perform In Q1 2016?
• Impressive Growth In The Smokeable Products Segment Helps Altria Beat Estimates
• How Will Altria Perform In Q1 2016?
• What Are Altria’s Strengths Driving Long-Term Growth?
• What Are Some Obstacles To Altria’s Long-Term Growth?
• How Will Altria’s Revenue And EBITDA Change In The Next 3 Years?
• How Has Altria’s Revenue And EBITDA Composition Changed In The Last 5 Years?
• Altria: Year 2015 In Review
• How Has Altria’s Shipment Volume, By Brand, Changed Over The Past 3 Years?
• How Has Altria’s Retail Share In Smokable Products And Smokeless Products Changed Over The Last Year?
• What is Altria’s Revenue And EBITDA Breakdown?
• What is Altria’s Fundamental Value Based On Expected 2016 Results?
• By What Percentage Did Altria’s Revenue & EBITDA Grow In The Last 5 Years?

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