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Altria (MO) Looks Sinfully Good to Hold for the Long Term

MO PM XXII TPB

Trades from $3

Despite being a sinful stock, Altria Group Inc. (MO - Free Report) has managed to enhance its market share on the back of strategic initiatives. The company is putting lot of effort on  developing and tapping the growing market of low-risk, smokeless tobacco products like e-cigarettes. Its MarkTen e-cigarette brand has gained popularity after its launch in Aug 2013.

Altria and Philip Morris International Inc. (PM - Free Report) also entered into a strategic agreement in first quarter fiscal 2016.  As per the deal, Philip Morris markets Altria’s MarkTen e-cigarettes internationally and the latter distributes two of Philip Morris’ heated tobacco products in the U.S. Additionally, the two companies have decided to partner on a regulatory engagement related to the e-cigarettes.

It is tapping the e-commerce space with its flagship Marlboro brand. The Marlboro couponing app developed by the company is very popular already and is accepted by 100,000 retail locations. It covers almost 70% of industry volume. The company is currently working on enhancing the digital platform and popularize it by aggressive marketing. This should boost top line in an age when e-commerce is the buzz line.

ALTRIA GROUP Price, Consensus and EPS Surprise

 

ALTRIA GROUP Price, Consensus and EPS Surprise | ALTRIA GROUP Quote

These initiatives have helped Altria make a strong start to 2016 recording both higher earnings and sales driven by strong pricing power and better-than-expected volume growth in first-half 2016. The company even raised its full year 2016 outlook based on robust first-half 2016 results.

Concerns

Although aforementioned endeavors hold promise in the long run, we cannot ignore the headwinds with which the tobacco industry is grappling, which puts margins under pressure. Governments around the world are imposing packaging  and advertising restrictions on tobacco companies which consequently are lowering cigarette consumption. Further, worldwide anti-tobacco campaigns are reducing tobacco consumption which is negatively affecting cigarette volumes of these companies.

Governments are also increasing taxes on tobacco products which are compelling the companies raise prices to maintain margins. Thus consumers are decreasing consumption of cigarettes which is in turn negatively impacting the top line of the company.

Zacks Rank

Altria carries a Zacks Rank #3 (Hold). One can count on better-ranked stocks like Turning Point Brands, Inc. (TPB - Free Report) and 22nd Century Group, Inc. (XXII - Free Report)

Turning Points Brands sports a Zacks Rank #1 (Strong Buy) and has seen considerable upward estimate revisions over the past seven days. You can see the complete list of today’s Zacks #1 Rank stocks here.

22nd Century Group carries a Zacks Rank #2 (Buy) and its earnings are expected to grow 20% in the next year.

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