Altria Group (NYSE: MO) is a cheap stock at the current price with an 8% dividend yield and JUUL, IQOS and On! will be more meaningful to the company’s stock in the next five years, according to a bullish thesis by Charioteer Investing.
Analyzing the company’s 2020 second-quarter financial report, the investor highlighted some interesting developments. The first big event is the dividend hike - a sign of cash flow stability. The company increased the annualized dividend to $3.44 per share - this 2.4% increase surpassing the investor’s expectations. The dividend increase marks the 55th dividend increase in the past 51 years.
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The second big item was Altria reestablished the full-year EPS guidance after suspending it last quarter. Before the pandemic, EPS guidance was $4.39-4.51. Now the company expects its 2020 full-year adjusted EPS to be in a range of $4.21 to $4.38, representing a growth rate of 0% to 4% from an adjusted EPS base of $4.21 in 2019. It is a modest cut but nevertheless a sign of confidence that the situation has not gone completely negative, according to the investor.
The oral products category is performing well. On! is posting strong growth with revenues increasing 9.6%, with both higher volumes and better pricing. Operating income was up 8.1%. The company plans to hit 50 million cans this year and is working to remove capacity constraints next year. On! is now sold in over 40,000 stores. On! appears to be a slam dunk and management noted that it has extremely high uptake amongst women in particular, which is an underpenetrated market segment relative to oral tobacco users. Given the extremely high margins in this segment, any organic growth here will generate massive free cash flow for shareholders.
JUUL is unimpressive, but IQOS couple be a hidden gem, according to the investor. Heated Tobacco (IQOS) received approval from the FDA to be marketed as a modified risk tobacco product in July. The company reopened the IQOS boutiques in Atlanta and Richmond, and opened a new boutique in Charlotte. By the end of August, they expect HeatSticks to be in 700 retail stores across those 3 markets, and over the next 18 months, IQOS is expected to be launched in the four new markets. So, IQOS is taking some market share and as the retail footprint grows is expected to drive some very good growth numbers, according to the investor who holds shares of Altria.
So, Altria looks stable despite some depressing points. The dividend is stable, and On! and IQOS seem to hold the leading positions in the market. JUUL and Cronos are susceptible to doomed fate, but Altria is above the possible loss. If JUUL fails, anyway, Altria has another option of the MarkTen, its own vape brand. A Democratic win can possibly ease the Cannabis restrictions that can prove to be a game changer for Cronos.
Altria shares has gained 6.67% in the past three month and 3.84% over the past 12 months.
Meanwhile, Altria Group (NYSE:MO) has seen a decrease in hedge fund interest in recent months. The company was in 43 hedge funds’ portfolios at the end of the second quarter of 2020. Our calculations also showed that MO isn’t among the 30 most popular stocks among hedge funds.
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