40% Upside For Altria’s Stock Possible Post COVID-19 Crisis?

Comparing the trend in Altria Inc. (NYSE: MO) stock over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can potentially gain 40% once fears surrounding the coronavirus outbreak are abated. Our conclusion is based on our detailed comparison of Altria’s performance vis-à-vis the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Altria Stock Fare Compared With S&P 500?

The World Health organization (WHO) had declared a global health emergency at the end of January, in light of the coronavirus spread. Since then, MO stock has lost 30% of its value (vs. about 27% decline in the S&P 500). A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Fears of a price war in the oil industry triggered by an increase in production by Saudi Arabia only made matters worse. MO stock declined from about $42 on 6th March 2020 to $32 as of yesterday 24th March 2020, a 21% drop ( vs. 18% decline in the S&P 500 during the same period).

How Did Altria’s Stock Fare During 2008 Downturn?

We see MO stock declined from levels of around $11 in October 2007 (the pre-crisis peak) to levels of around $9 in March 2009 (as the markets bottomed out) – implying MO stock lost as much as 23% from its approximate pre-crisis peak. This marked a lower drop than the broader S&P, which fell by as much as 51%.

MO recovered strongly post the 2008 crisis to levels of about $12 in early 2010 – rising by 34% between March 2009 and January 2010. Notably, though, the S&P bounced back by about 48% over the same period.

Will Altria’s stock recover similarly from the coronavirus spread?

We compare the performance of Altria vis-à-vis the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Altria Stock Fare Compared With S&P 500?

Overall, there have been two distinct trends driving the recent sell-off. Firstly, the increasing number of Coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 20% after Saudi Arabia increased production.

Rationale Behind Stock Movement

• Tobacco stocks are generally viewed as good defensive bets through such crises and there is a possibility that Altria’s stock is oversold. However, demand is partially offset by lower consumer spending power.
• Thus, the decline in Altria’s stock price is lower than the decline in the broader market.
• Also, going by the trends seen during the 2008 economic slowdown, it’s likely that Altria’s stock could bounce back strongly but potentially underperform the market as the crisis winds down, due to the defensive nature of tobacco stocks.
• We believe Altria’s Q1 and Q2 results will confirm this reality with a drop in revenues being lower than trends in most of the other industries.
• However, if signs of coronavirus containment aren’t clear by the Q1 earnings timeframe, it’s likely Altria’s stock along with the broader market is going to see a further drop (though its drop will still be lower than the market).

Conclusion

While Altria’s stock has declined due to the Coronavirus/Oil Price War crisis, going by trends seen during the 2008 slowdown, it’s likely that it could bounce back at a reasonable rate, but potentially underperform as the crisis winds down. Based on 2008 crisis comparison, Altria’s stock could potentially see an upside of 40% post the current crisis.

What About Timing?

Potential for 40% gains in Altria’s stock, and its timing, hinges on the broader containment of the coronavirus spread – our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a more complete macro picture. The complete set of coronavirus impact and timing analyses is available here.

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