Text size

A close-up view of cigarettes

Matt Cardy/Getty Images

Tobacco maker

Altria Group

is going to get the chance very soon to close the gap that opened when old rival

Philip Morris

 logged an earnings beat this week.

The opportunity comes on Thursday when Altria (ticker: MO) reports its second-quarter earnings. Philip Morris (PM) posted its numbers on Tuesday.

Altria is up 15% year to date, not far behind Philip Morris’s (PM) 16.6% gain, but the two stocks have diverged the past few months.

Altria, which focuses on the domestic market, has seen its shares move largely sideways since late April, on worries about additional regulation on nicotine. Philip Morris, by contrast, is exclusively focused on international markets, and moreover has seen growth in its modified risk product IQOS, which the company hopes will supplant combustible cigarettes.

For Altria’s numbers, analysts are looking for earnings per share of $1.18 on revenue of $5.38 billion. That compares with EPS of $1.07 in the previous quarter.

Deutsche Bank analyst Steve Powers is one bullish voice ahead of report. He reiterated a Buy rating and $54 price target on the stock, writing that he expects a largely in-line quarter from Altria.

Powers noted that the company has face headwinds in the past three months—including higher prices and tough comparisons—that weighed on tobacco sales across the industry. That said, he argued that there are other reasons to own the stock. It sports a generous 7.3% dividend yield, while the winding down of the Covid-19 crisis in much of the U.S. should allow for social gatherings and a more normalized operating environment.

In addition, the company recently said it plans to sell its wine assets, raising the likelihood that it could exit its investment in

Anheuser Busch InBev

(ABI) later this year.

Powers wrote that “a simple secondary offering of Altria’s entire stake could raise upwards of $11 billion to $12 billion in net proceeds, though Altria may ultimately avail itself of other (potentially more tax-efficient) and/or staggered options for divestiture.”

Write to Teresa Rivas at [email protected]

LEAVE A REPLY

Please enter your comment!
Please enter your name here