E Altria - Time For Entry

In my initiating report on Altria (MO) last November, I had initiated the discussion on MO's long term positive outlook, attractive dividend yield, strong moat, and stable EPS growth and recommended a buy with a target price of $51. The stock, having topped the $51 mark post the publication of the report, is currently reeling at $30-levels amidst the global sell-off on the back of Coronavirus pandemic. In this report, we would take a detailed look at the near term challenges, COVID-19 impact and the outlook going forward.

4Q Review and Guidance

Shipment volumes for smokeable products declined 6% in Q4 2019 and 7% in 2019 against the market volume degrowth of 4.5% and 5.5% respectively, in line with the expectations. The company continues to be on a wobbly trajectory in the near term with volatile cigarette volumes compared to historical stable EPS growth in mid to high-single digits. The management reiterated their focus on IQOS and on! products having being rolled out across several parts in the US, which has seen a staggering growth for MO's partner PM outside of the US. According to Philip Morris International, the total users using IQOS has jumped up to 13.6mn from 7.6 mn in two years, with 71% users who have stopped smoking and switched primarily to IQOS. IQOS also is currently the third-largest brand in the tobacco market globally with a 5.5% market share, even though it hasn't been fully rolled out across its 52 markets.

The disappointing part continues to be JUUL where it recorded an additional $4.1bn impairment in Q4 topping the earlier $4.5bn impairment charges already recorded earlier in the year.  The legal cases pending against JUUL rocketed up 80% since October and the company doesn't expect to make a dime out of it at least until three years resulting in a sharp markdown as well as a decrease in earnings guidance 4-6% EPS growth for 2020-2022 vs (5-7% three months back). The company increased its dividend 54th time in the 50 years with an annual dividend yield of 9.8%, one of the best across the S&P 500 stocks.

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Sandy J. Newman 1 month ago Member's comment

Thanks, where can I read your last report on $MO?