Is Altria Set To Fall Short Of Market Expectations For 2019?

Altria (NYSE: MO) is slated to release its Q4 and full-year 2019 results on January 30, 2020. Trefis details expectations from the Tobacco giant in an interactive dashboard – Altria’s Pre-Earnings – parts of which are highlighted below. We believe that Altria’s revenues and earnings for 2019 could miss consensus marginally. We expect Altria to report revenues of $19.7 billion (slightly lower than consensus estimate of $19.9 billion), which is 0.5% higher on y-o-y basis, primarily due to higher sales of smokeless tobacco products. Additionally, earnings are likely to be around $4.20 per share (vs. consensus estimate of $4.22), which will mark a significant increase from $3.71 reported in FY 2018, due to a combination of higher revenues and lower expenses, pushing adjusted net income margin higher. Despite the company expected to post lower-than-expected earnings with revenue, the worst might be over for Altria with it already accounting for impairment of its share in JUUL and Cronos in Q3 2019, which has already reflected in the current stock price which is almost 11% lower than its high of 2019. Thus, we expect Altria’s stock price to rise once earnings are announced. In fact, our forecast indicates that Altria’s Valuation is $57 per share, which is roughly 12% above its current market price.

A] Revenue To Miss Consensus

• Total revenue has increased at a CAGR of 0.8% over the previous two reported years, with the company adding about $0.3 billion to its revenue base between 2016 and 2018.
• Trefis estimates Altria’s 2019 revenue to be $19.7 billion, marking a y-o-y growth of 0.5%, driven by rising sales of its smokeless tobacco products, partially offset by lower cigarette shipments.
• Revenue from the smokeless products division is expected to increase in the near future, driven by higher volume, along with premium pricing and partial phasing out of promotional investments and discounts. Continuously increasing market share of Copenhagen, which is the premier offering in the oral tobacco category, is also expected to boost segment revenues.
• Revenue from smokeable products segment is expected to remain under pressure going forward, mainly due to lower shipments, partially offset by higher pricing. Cigarette volumes have also been decreasing over recent years as people are moving away from combustible products. However, Altria has resorted to price increases to avoid a sharp decline in revenue.

We have detailed segment-wise revenue performance and outlook for 2020 in a separate interactive dashboard – How Does Altria Make Money?

B] EPS To Miss Consensus

• Altria’s 2019 earnings per share (EPS) is expected to be $4.20 per Trefis analysis, slightly lower than the consensus estimate of $4.22 per share, but significantly higher than $3.71 per share in 2018.
• An increase in revenues as detailed above coupled with a fall in expense level and decreasing share count will drive EPS growth on a y-o-y basis.
• We forecast Altria’s revenues to grow at a modest rate while expenses are expected to decline in 2019 (0.5% vs. -4.6%), which could result in a slight increase in Altria’s Adjusted Net Income Margin figure from 27.5% in 2018 to 30% in 2019.
• Expenses are expected to decrease as the company gains from gradual decrease in promotional offers and discounts on smokeless products and higher income from JUUL and Cronos.

C] Stock Price Estimate 12% Higher Than Market Price

• A trailing P/E multiple of 13.6x looks appropriate for Altria’s stock, as opposed to the current implied P/E multiple of 12.1x.
• Though Trefis’ forecast for Altria’s 2019 revenue and earnings is slightly less than consensus, its estimate for the P/E multiple is higher than market expectations, working out to a fair value of $57 for Altria’s stock as opposed to the current market price of around $51.

Additionally, you can input your estimates for Altria’s key metrics in our interactive dashboard for Altria’s pre-earnings, and see how that will affect the company’s stock price.

See all Trefis Price Estimates and Download Trefis Data here

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