Will Pricing Gains Drive Altria’s Q2?

Altria (NYSE: MO) will report its Q2 2023 results on Wednesday, July 31, and it will likely post an upbeat quarter. We expect the company to post revenue of $5.43 billion and adjusted earnings of $1.35 per share, compared to the consensus estimates of $5.39 billion and $1.34, respectively. Although the company should continue to see a decline in cigarette volume, given the higher inflation, pricing growth will likely help offset some of the revenue loss from volume. Also, we believe MO stock looks reasonably priced from a valuation perspective, as discussed below. Our interactive dashboard analysis of Altria Earnings Preview has additional details. So, what are some of the trends that are likely to drive Altria’s results?

Firstly, let us look at its stock performance. MO stock has seen a 25% rise, moving from levels of $40 in early January 2021 to around $50 now, vs. an increase of about 45% for the S&P 500 over this roughly three-year period. However, the increase in MO stock has been far from consistent. Returns for the stock were 16% in 2021, -4% in 2022, and -12% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that MO underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Consumer Staples sector including WMT, PG, and COST, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could MO face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, MO stock likes appropriately priced. We estimate Altria’s Valuation to be $47 per share, slightly below  its current price of around $50. Our forecast is based on a 9x P/E multiple for MO and expected earnings of $5.13 on a per-share and adjusted basis for the full year 2024. The 9x figure aligns with the stock’s average P/E ratio over the last three years.

Looking at the previous quarter, Altria’s revenue of $4.7 billion in Q1 2024 reflected a 1% y-o-y decline. This can be attributed to lower volumes for both smokeable and oral tobacco products, mostly offset by better price realization. The company reported diluted EPS of $1.15 per share in Q1 2024, reflecting a 2.5% decline over the prior-year quarter.

Coming to the latest quarter, we expect a similar trend, with volumes declining due to the impact of high inflation on consumer discretionary income. Altria has lately been able to offset the revenue losses from lower volume with better pricing, a trend expected to continue. Altria should also benefit from its relatively new smoke-free products, including NJOY and on! The company expects to record gains of $1.17 per share related to the sale of IQOS commercialization rights in Q2.

Overall, we expect Altria to post an upbeat Q2, with pricing strength driving its performance. However, we think its stock is appropriately priced at levels of around $50. Still, if the company were to post an upbeat Q2 and raise its outlook, the stock will likely see higher levels.

While MO stock looks reasonably priced, it is helpful to see how Altria’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 7/29/2024
[2] Cumulative total returns since the end of 2016

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