Altria's Focus On Smoke-Free Products Helps Propel Stock

Altria Group, Inc. (NYSE:MO) hit a 52-week high of $77.78 yesterday and closed at $77.71. The movement has been backed by the company’s strong brand portfolio, its shift to low-risk smokeless tobacco products and strong pricing strategy.

Altria has been performing better than the broader Zacks categorized Consumer Staples sector over the past one month. During the said time period, the company’s shares advanced 7.9% compared with the sectors growth of 1.0%. So what exactly has been driving the stock? Let’s look into the factors impacting the company’s performance.

Factors Impacting Performance

Altria’s impressive brand portfolio of tobacco and wine products helps it to maintain a strong business momentum and generate decent profit. In addition to a strong brand portfolio, Altria has been quick to respond to market changes. There has been a general shift among consumers toward low-risk, smokeless tobacco products. Its flagship MarkTen e-cigarette brand (launched in 2014) and Green Smoke e-vapor products are some of the examples.

MarkTen XL – a variant on MarkTen launched by the company in 2016 has been encouraging in lead markets. At the end of 2016, MarkTen represented about 55% of the e-vapor category volume in retail channels, including c-stores.

Altria also signed an agreement with another tobacco maker Philip Morris International, Inc. (NYSE:PM) under which the latter markets Altria’s MarkTen e-cigarettes internationally and distributes two of Philip Morris’ heated tobacco products in the U.S. The joint venture has made excellent progress on branding and go-to-market strategies for non-conventional cigarettes in the U.S. market.

On Mar 31, Philip Morris has applied for pre-market approval of its iQOS heated tobacco product with the U.S. Food and Drug Administration, which will be sold by Altria in U.S., if the FDA grants Philip Morris’ request. Such collaboration is encouraging as it will help the participating companies maintain market share amid declining volume and growing awareness against tobacco products.

Despite such positive attributes, the company remains highly concerned regarding the declining demand for cigarettes due to the strict anti-tobacco regulations and campaigns. Nevertheless, Altria has managed to remain consistent with its performance and generate revenues with higher cigarette pricing in the face of unfavorable tax environment and declining cigarette volumes. In fact, Altria raised its cigarette prices in March 2017 to offset the impact of increased state excise taxes in California.

The company currently holds a Zacks Rank #3 (Hold).

Other Key Picks

Some better-ranked stocks in the same sector include Constellation Brands, Inc. (NYSE:STZ) , MGP Ingredients, Inc. (NASDAQ:MGPI) and Aramark (NYSE:ARMK) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Constellation Brands has an average positive earnings surprise of 7.7% over the trailing four quarters and has a long-term earnings growth rate of 17.8%.

MGP Ingredients has an average positive earnings surprise of 27% over the trailing four quarters and has a long-term earnings growth rate of 15%.

Aramark has an average positive earnings surprise of 4.5% over the trailing four quarters and has a long-term earnings growth rate of 12%.

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