Altria Group (MO) Stock Lower on RBC Capital Downgrade

Altria Group (MO) stock is falling in pre-market trading on Tuesday, following a downgrade to 'sector perform' from 'outperform' at RBC Capital this morning.
By Rachel Graf ,

NEW YORK (TheStreet) -- Altria Group (MO) - Get Report stock is declining by 0.38% to $60.26 in pre-market trading on Tuesday, after a rating downgrade to "sector perform" from "outperform" at RBC Capital this morning. 

The firm raised its price target to $62 from $60 on the stock. 

Shares of Altria Group are nearing their fair value, and "it is hard to justify much more upside from current levels," RBC Capital said in a note.

The company sells cigarettes under the Marlboro brand and owns Philip Morris (PM). Marlboro's volumes decreased by 0.7% in the 2015 third quarter, and Philip Morris's volumes were flat for the quarter, the firm notes. 

The potential Anheuser-Busch InBev (BUD) and SAB Miller merger could benefit Altria Group's 2019 earnings per share by 8% to 10%, but if the company is forced to use cost method accounting, its earnings per share growth will likely decrease to a range between 4% and 6% from 7% and 9%, according to RBC Capital.

Based in Richmond, VA, Altria Group manufactures and sells cigarettes, smokeless products, and wine in the United States and internationally.

Separately, TheStreet Ratings team rates ALTRIA GROUP INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

We rate ALTRIA GROUP INC (MO) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, growth in earnings per share, increase in net income and expanding profit margins. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 14.5%. Since the same quarter one year prior, revenues slightly increased by 4.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • ALTRIA GROUP INC has improved earnings per share by 9.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, ALTRIA GROUP INC increased its bottom line by earning $2.57 versus $2.26 in the prior year. This year, the market expects an improvement in earnings ($2.81 versus $2.57).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Tobacco industry average. The net income increased by 9.4% when compared to the same quarter one year prior, going from $1,397.00 million to $1,528.00 million.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Tobacco industry and the overall market, ALTRIA GROUP INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for ALTRIA GROUP INC is rather high; currently it is at 61.07%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 30.69% trails the industry average.
  • You can view the full analysis from the report here: MO
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