Why Key Analyst Sees Altria Stock Rising

Altria Group Inc. (NYSE: MO) recently reaffirmed its guidance after posting its first-quarter results. This stock is often thought of in high regard as a defensive stock and even held for its attractive dividend. One key analyst weighed in after the earnings were reported.

Argus upgraded the stock to a Buy rating from Hold with a price target of $68, implying an upside of about 8% from the current price level. The company has a strong balance sheet and pays a solid dividend with a yield of about 3.6%. It also has a range of top-selling brands, such as Marlboro, that are able to command premium pricing. In addition, it has lessened its exposure to tobacco industry risks by expanding into non-tobacco-related businesses.

This research firm also expects Altria to benefit from new regulations governing the sale of e-cigarettes and vaporizers as higher safety testing costs weigh more heavily on smaller manufacturers, which currently hold a large share of the smokeless market. Although the new regulations will not take effect for several years, they should benefit Altria and other large producers that have the resources to manage the FDA approval process. By pressuring smaller manufacturers, they could also be a catalyst for industry consolidation.

In late April, Altria reported its first-quarter earnings as $0.72 per share, an increase from $0.63 last year and above the consensus estimate of $0.68, but below Argus’ estimate of $0.80. Revenue excluding excise taxes rose 6% to $4.5 billion, above the consensus estimate of $4.4 billion.
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Separately, the company reaffirmed its 2016 diluted earnings guidance in the range of $3.00 to $3.05 per share, implying growth of 7% to 9% from $2.80 in 2015. The consensus estimate calls for $3.06 per share for 2016.

This stock has gained more than 20% over the past year, while the S&P 500 has fallen 2.1%. Altria has also risen nearly 3% over the past quarter, compared to a rise of 6% for the index.

Shares of Altria were trading up 0.6% at $63.29 Monday morning, with a consensus analyst price target of $66.25 and a 52-week trading range of $47.31 to $64.16.