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Altria Versus Reynolds: Which Stock Should You Bet On?
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The world economy seems to have recovered from the Brexit jolt, but uncertainties surrounding the Fed decision of a rate hike and other global issues still exist. Amid the prevailing economic conditions, investing in the consumer staple sector is safe due to its defensive nature.
In the consumer staple sector, the tobacco industry is showing some good signs right now. Reynolds America Inc. and Altria Group, Inc. (MO - Free Report) are two of the largest tobacco companies in America. Both these stocks carry a Zacks Rank #3 (Hold). Even though a little unconventional, tobacco seems to be a relatively safer sector to invest in at present. These companies stand to benefit from the addictive nature of tobacco. Smoking rates have, in general, been declining in the developed countries, while rising in the developing ones. This figure is anticipated to grow and resulting into steady sales and attractive yields for investors.
So, let us find out which cigarette maker looks solid right now.
Earnings Performance
Altria Group made a strong start to 2016 recording both higher earnings and sales backed by strong pricing power and better-than-expected volume growth in first-half 2016. The company even raised its fiscal outlook based on robust first-half 2016 results. Supported by lower excise tax, gross profit and operating income increased year over year during the period.
Altria upgraded its shopping website – marlboro.com – which provides engaging content directly to adult smokers through mobile devices. The core tobacco segments yielded decent results with Marlboro achieving its targeted market share in the first half. Brands like Copenhagen and Skoal also gained share during the period.
Reynolds also reported higher year-over-year earnings and sales in first-half 2016 backed by increased cigarette and moist snuff pricing. Its impressive brand portfolio of tobacco products aids in sustaining strong business momentum and generating decent profits. Further, the company invests consistently in innovation and brand building, which have helped it to maintain its leading position in the industry.
Tobacco stocks reward investors with attractive yields. While Altria’s dividend yields 3.42%, Reynolds American has a dividend yield of 3.39%.
What do the Numbers Say
In terms of share price, Altria is racing ahead with a 14% appreciation year-to-date in 2016 against Reynold’s appreciation of almost 7.80%.
However, with regard to long-term growth, Reynolds seems to have the lead. Its estimated long-term growth rate is 11.93%, which is way ahead of the industry growth rate of 9.70%. Also, it is better than Altria’s long-term growth rate of 7.4%, which is behind the industry growth rate.
However both these stocks carry a VGM ScoreScore of ‘F.’
Further, both stocks are overvalued as is evident from their unfavorable P/E ratios compared with the tobacco industry. Reynolds’ P/E ratio is 21.33 while that of Altria is 21.58. On the other hand, the P/E ratio of the industry is 19.80.
Altria, the Winner
Undoubtedly, both Altria and Reynolds have delivered the goods in 2016 and have their own share of strengths and weaknesses. However, Altria emerges the winner when it comes to dividend yield and share price appreciation.
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Altria Versus Reynolds: Which Stock Should You Bet On?
The world economy seems to have recovered from the Brexit jolt, but uncertainties surrounding the Fed decision of a rate hike and other global issues still exist. Amid the prevailing economic conditions, investing in the consumer staple sector is safe due to its defensive nature.
In the consumer staple sector, the tobacco industry is showing some good signs right now. Reynolds America Inc. and Altria Group, Inc. (MO - Free Report) are two of the largest tobacco companies in America. Both these stocks carry a Zacks Rank #3 (Hold). Even though a little unconventional, tobacco seems to be a relatively safer sector to invest in at present. These companies stand to benefit from the addictive nature of tobacco. Smoking rates have, in general, been declining in the developed countries, while rising in the developing ones. This figure is anticipated to grow and resulting into steady sales and attractive yields for investors.
So, let us find out which cigarette maker looks solid right now.
Earnings Performance
Altria Group made a strong start to 2016 recording both higher earnings and sales backed by strong pricing power and better-than-expected volume growth in first-half 2016. The company even raised its fiscal outlook based on robust first-half 2016 results. Supported by lower excise tax, gross profit and operating income increased year over year during the period.
Altria upgraded its shopping website – marlboro.com – which provides engaging content directly to adult smokers through mobile devices. The core tobacco segments yielded decent results with Marlboro achieving its targeted market share in the first half. Brands like Copenhagen and Skoal also gained share during the period.
ALTRIA GROUP Price, Consensus and EPS Surprise
ALTRIA GROUP Price, Consensus and EPS Surprise | ALTRIA GROUP Quote
Reynolds also reported higher year-over-year earnings and sales in first-half 2016 backed by increased cigarette and moist snuff pricing. Its impressive brand portfolio of tobacco products aids in sustaining strong business momentum and generating decent profits. Further, the company invests consistently in innovation and brand building, which have helped it to maintain its leading position in the industry.
REYNOLDS AMER Price, Consensus and EPS Surprise
REYNOLDS AMER Price, Consensus and EPS Surprise | REYNOLDS AMER Quote
Dividend Yields
Tobacco stocks reward investors with attractive yields. While Altria’s dividend yields 3.42%, Reynolds American has a dividend yield of 3.39%.
What do the Numbers Say
In terms of share price, Altria is racing ahead with a 14% appreciation year-to-date in 2016 against Reynold’s appreciation of almost 7.80%.
However, with regard to long-term growth, Reynolds seems to have the lead. Its estimated long-term growth rate is 11.93%, which is way ahead of the industry growth rate of 9.70%. Also, it is better than Altria’s long-term growth rate of 7.4%, which is behind the industry growth rate.
However both these stocks carry a VGM ScoreScore of ‘F.’
Further, both stocks are overvalued as is evident from their unfavorable P/E ratios compared with the tobacco industry. Reynolds’ P/E ratio is 21.33 while that of Altria is 21.58. On the other hand, the P/E ratio of the industry is 19.80.
Altria, the Winner
Undoubtedly, both Altria and Reynolds have delivered the goods in 2016 and have their own share of strengths and weaknesses. However, Altria emerges the winner when it comes to dividend yield and share price appreciation.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>