Altria (NYSE:MO) stock is essentially flat after the company reported a miss in both revenue and earnings in its quarterly earnings report. The company delivered revenue of $5.41 billion which was shy of analysts’ estimates for $5.59 billion. Earnings were a narrower miss, with Altria posting $1.28 earnings per share (EPS). Analysts were forecasting EPS of $1.30. The top line number was also lower on a year-over-year basis, but the earnings numbers showed a slight gain. It’s important to note that while the company did narrow its projected range, it still expects full-year EPS to be higher in 2022 than in the prior year. The company is now saying EPS will fall in a range of $4.81 to $4.89. This is higher than the $4.61 reported for the full year in 2021 and shows a growth of 4.5% on the low end.
Moving Towards a Smokeless Future
A highlight of the report was the announcement of a partnership between Altria and JT Group (Japan Tobacco). The goal is to commercialize heat-not-burn cigarettes, including Japan Tobacco's product, Ploom. The first objective of this partnership will be for Altria to obtain regulatory approval for Ploom in the United States.
This is the latest effort by Altria to expand its oral tobacco business. To that end, the company also announced it was exercising its option and exiting the non-compete agreement it had with Juul. This will give Altria the ability to partner with another e-cigarette company or relaunch its brand, which it exited in 2018 when it purchased a stake in Juul.
What's the Link Between Smoking and Recessions?
Investors should ask whether they believe consumers will cut back on smoking cigarettes. In Altria’s presentation to investors, it showed a 3% decline in cigarette sales from this quarter to the same quarter in 2021. That’s about double the industry average, and it’s not a trend that started in 2021.
But here’s what investors should note. In 2020, the decline in cigarette sales reversed. That’s not to say they increased, but they didn’t go down. Altria CEO Billy Gifford pointed out on the conference call that the company never viewed 2020 as anything more than an anomaly.
That may be true, but sin stocks have a way of delivering the goods in terms of revenue and earnings, even during difficult times.
If consumers do stick with their habit, here’s something else that the company showed in its earnings presentation: Consumers have more brand loyalty to cigarettes than alcohol, groceries or other household items, regardless of price. Altria is home to the Marlboro brand, which captures over 58% of the premium segment, which you might think will be less impacted in a recession.
Is MO Stock a Buy?
Prior to the earnings report, MO stock was rated as a "hold" by the analysts tracked by MarketBeat. For the first half of 2022, MO stock was on the rise. In fact, in early May (prior to the first interest rate hike), the stock was up 19% for the year. Post earnings, the stock is basically flat but still outperforms the broader market.
The stock did cross above its 50-day moving average and bumps up against its 200-day moving average. For now, that looks to be an area of resistance.
Can MO stock push through? History suggests it might. The period after a midterm election is typically bullish for stocks. Even if it’s not, you get a solid dividend to boost your total return. Currently, the stock pays out $3.76 per share on an annual basis and an 8.14% dividend yield. Plus, the company has increased its dividend for the last 12 consecutive years.
