Things Are Brewing at Altria

by Randall Radic
-4.74%
Downside
44.61
Market
42.50
Trefis
MO
Altria Group, Inc.
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Submitted by Randall Radic as part of our contributors program.

Altria (MO) reported third-quarter earnings of 58 cents per share, surpassing the previous year’s same quarter results by 3.6%. According to Altria, the improvement was driven by two primary factors: higher sales from the company’s investment in SAB Miller and the buyback of outstanding shares. Some analysts expected micro-brews and the increasing popularity of home beer brewing supplies to impact SAB Miller’s market share. If there was any impact, it was negligible.

Briefly, the important data is as follows: Altria beat expectations on revenues and met expectations on earnings per share. Gross margins decreased, operating margins expanded, and net margins fell. For the third-quarter, the gross margin was 55.6%, 90 basis points less than the same quarter of the previous year. Operating margins went the other way, increasing by 44.3%, 90 basis points more than the previous year’s quarter. And net margins, compared to the previous year’s quarter, suffered by 14.7%, a drop of 1,240 basis points.

Revenues at Altria rose 2.2% to $4.47 billion because of strong growth in smoke-able products. Also on the positive side, Altria is engaged in an active program of cost reductions across the board. Nevertheless, there are external negative factors that might affect the company: adverse excise taxes could result in price increases, especially in Altria’s premium brands. And then there is the ever-looming cloud of litigation expenses. The negative factors are causing some investors to adopt wait-and-see attitudes.

Jeffries Group set their price target on Altria at $33, giving the stock a hold rating. Goldman Sachs set a price target of $35, and stated their position as neutral on the stock. In contrast, Citigroup bumped Altria’s stock from neutral to a buy rating, giving a target price of $39.

Altria’s shares dropped just over 1% last week, to $29.55. The company’s 52-week high was $36.29, and its 52-week low was $26.96. Altria’s market cap is $65.207 billion, with a P/E ration of 16.75, which would appear to contradict the wait-and-see perspective.

Analysts estimate next quarter’s revenue at $4.36 billion, which puts the average earnings per share at 54 cents. The estimate for next year’s revenue is $17.37 billion, with the earnings per share estimate of $2.20.

Most investors like the outlook for Altria. Over 90% of the Motley Fool’s members rate the stock as outperform. And the highest-ranked CAPS members give Altria a buy rating. Most Wall Street analysts concur, with the above noted exceptions of Jeffries Group and Goldman Sachs, taking the position that the company will outperform expectations.

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