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Altria: Exemplar Of Resilience

May 05, 2020 8:17 AM ETAltria Group, Inc. (MO)66 Comments
Mare Evidence Lab profile picture
Mare Evidence Lab


  • Altria's tobacco products performed well in the first COVID-19 quarter.
  • The company is a leader in non-combustibles, giving it some long-term footing, and it's a product portfolio that also performed well in the COVID-19 environment.
  • There are concerns around the company's US-centricity and the quality of its equity investments.
  • Nonetheless, Altria has some strong brands and continues to generate lots of cash even now, making it an attractive pick.

Altria (NYSE:MO) had a strong quarter, where for the first time in years COVID-19 was able to stem the decline in the cigarette business by keeping stressed people idle at home. We were not surprised that the results of this Dividend Aristocrat would be of some quality, with strong performance across almost all segments. The only underperformers were its vaping and e-cig products, which were hampered by delayed commercialisation efforts and regulatory headwinds. Overall, we think that Altria is attractive due to its strong non-combustible portfolio, giving it an out for the long term, and the attractive cash generation that we can expect to continue even in this challenging environment. For that reason, we think that this is an appropriate pick for income investors.

(Source: Altria Q1 2020 Presentation)

The Positives: Resilience

In the most recent quarter, Altria proved its resilience with 18.5% growth in EPS, driven primarily by volume. For the first time in a while, the COVID-19 environment afforded Big Tobacco a reason for stemmed decline in smokeables after years of a continued secular downturn. Essentially all smokeable products saw substantial growth, including Middleton Cigars, which grew at 13% in volume, and deep discount cigarettes, which grew at 14.4%.

Although some of this growth was provoked by tailwinds in e-cigs, where negative publicity might have had people switch back to smokeable options, much of the volume growth is a consequence of pantry loading. This is a trend that's become quite familiar in the COVID-19 environment in food staples companies like Danone (OTCQX:DANOY) and Unilever (UL), and now it's manifested in tobacco with trips to the tobacco shop happening on more of a weekly rather than daily basis. For the moment, this stocking activity has front-loaded sales into the Q1, but management has not yet seen any evidence

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Mare Evidence Lab profile picture
Buy-side hedge professionals conducting fundamental, income oriented, long term analysis across sectors globally in developed markets. Please shoot us a message or leave a comment to discuss ideas.DISCLOSURE: All of our articles are a matter of opinion, informed as they might be, and must be treated as such. We take no responsibility for your investments but wish you best of luck.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (66)

will hit $30 this year. if you liked it at 60 or 50 0r 40 you must really like it now
if it clears 35 , it'll hit 30 this month.
On the contrary if it holds 35 there will be a support in this area… if it holds. So far so good.
Sadly this stock is half or less of what it was just three years ago. PM is not much better off. It has been a disaster to capital creation. They have seen their heyday, or did see it a long time ago and my money went up in smoke and it's nobody's fault but my own. I should not have drunk the kool-aid. I admit my mistake. And I know there are thousands more just like me.
Could somebody explain to me why MO has been collapsing these last few days? The latest earning report was not bad. ETF sales? I just can't understand how something like DIS is up after reporting dismal numbers, and MO is down 3% every day for no reason....
cemanuel profile picture
No idea but I bought more at $37 and change yesterday and just put a limit order for more in at $35. If it legs down from there I'll buy even more. When the market gives you a gift, take it - my motto anyway.
Lack of guidance. Most companies have escaped real punishment for not giving guidance, but the market will use any reason it can find to punish Altria's stock. The technicals are in charge here, not the fundamentals, and MO is caught in a 3-year downdraft with probably no end until the next bottom in the high 20's. When it failed to breach $42 again, it was down for the count.
It's partly technical as the stock tends to sell off near the 200 day MA and broke support levels yesterday. It's been churning lower for a few years and a dividend isn't payable for a while so short trades can hold for the move lower.

Double top was confirmed yesterday
moblackty profile picture
What about comments on cov-19 not effecting people who smoke near as much
As people who don’t. moblackty
That is the exact opposite of everything I've heard. pooby
I've heard that smokers are most likely to die from covid while also being the least likely to die from covid. mack
cemanuel profile picture
"What about comments on cov-19 not effecting people who smoke near as much
As people who don’t. moblackty"

Those comments are a load of hooey.

1. COVID-19 is first and foremost a respiratory illness.

2. Any respiratory illness disproportionately impacts people with compromised/reduced lung function.

3. Smoking compromises lung function (not only that but does actual physical damage to the lungs).

I own MO, a whole honkin' lot of it. But I also know the world would be a better place if there was no market for its products. I also own GD and LMT, can say the same about them.
I like the stock and have owned it forever but: "Moreover, Altria's first-mover positioning in both e-cigs and vape products"

That just isn't accurate at all.
Am I missing something? I just don’t understand why MO is down. It seems like a screaming “buy” with its 9% yield.
MO just won’t respond well to the upcoming recession. Most layoffs are in the sweet spot demographic for high-end Marlboro. And JUUL is dead, or close to it. And now, the market has caught on to the problem, here. MO (and HOG) have outlived their customer base. Nice run, for sure, but time to move on.
511southkstreet profile picture
Ok...good luck with that advise. Right now cash is king and MO has plenty of it to pay the dividend....unlike quite a few icons. Can you say Disney??
They will smoke and marlboro is they best. Bad habit but still the best.
Anthonyhai2003 profile picture
I go thru a couple packs of Marlboro thru these trouble times. Long MO!!
Infuriating that it continues to drop. Have owned for years and finally liquidating for a house purchase. Of course it tanks
MO broke to the downside today

Down to $30 soon
cemanuel profile picture
Added more today. Was thinking of seeing if it would go to $35 until I woke myself up and thought that 9% yield for a company coming off a solid ER was good enough. It's now my largest position by cost of purchase (AAPL & MSFT are far larger based on current value) and largest income producer.
Altria is always red no matter if marjet rallies or sells-off. Not a good stock to own. I have owned it for over 2 years. Pitiful
Bim Ska La Bim profile picture
Patience... 3 years ago it could do no wrong... 24 months in MO is a small step on a path that should be a long one...
@TheRagingBulll I've been investing in the market for 40 years, my #1 mistake was not buying shares of MO when I got started.
It won't see a green day all week
I've been buying a lot of Altria since August 2019. I'll reinvest those dividends until share price reaches the mid 50's and then I'll redeploy those juicy dividends elsewhere to mitigate the long term risks, even though I believe people will be smoking Marlboro's for many decades to come.
Wineguy1001 profile picture
Altria just wrote down $390M on their wine pet project, St. Michelle? This is a fixed asset that is a drain on the bottom line. Why is mgmt not divesting themselves of this segment?
I have some shares of a company, Lexaria Bioscience, that's been working with Altria to hopefully create the world's first (completely swallowable) oral nicotine products. They've been working together for a year and a bit now so hoping to see some news soon. Lexaria's technology is fairly new but I think any products in this line could be good arsenal for Altria's portfolio of a smokeless future.
Librarian Capital profile picture
I would focus more on the 5% year-on-year cigarette volume decline (much better than last year's -7% for Q1-3 and -6% for Q4) estimated by management.

The +6.1% volume growth in 20Q1 is all from pantry loading so it doesn't count.

Conversely, the faster-than-usual growth in the discount segment is due to older smokers coming back from e-vapor and going disproportionately to the discount category. It's not a negative for Altria and may be a positive in time when disposable incomes improve.
Long MO! Hoping the share price eventually rises. I plan to DRIP Drip drip my MO shares💧 in the meantime.
richjoy403 profile picture
286 -- What investment advantage do you gain by DRIPping in
a zero-commission world?
None. In fact some of the DRIP plans have fees to buy and sell!
The following reply is correct. I asked my broker that very question. The answer was with dripping you can get a part of a share. With buying you have to buy whole shares. As to fees, I do not know.
We're about to enter a long-drawn out period of unemployment, in which smokers are over-represented in the people unemployed (most are high school graduates, or less). Is it reasonable to think that they'll continue to buy premium cigarettes, or cigarettes at all?
@Roger Lignugaris Sadly, many addicts will do what they have to to get their fix. I know because I was one. And my master's degree did not help me overcome my addiction. I bought cigarettes before I would buy food whether I was employed or not. Nicotine got me through some tough times but I am now glad I do not smoke. For me nicotine was a powerful addiction. Decades after I quit, I still have the urge. Buy what you know. I know tobacco. Long MO.
LtPappy profile picture
Harold222, Thank you for your honest, experienced opinion. Very brave.
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