Why Altria Group (MO) Stock Is Slumping Today

NEW YORK (TheStreet) -- Shares of Altria Group Inc. (MO) are lower by -2.33% to $42.34 as cigarette stocks take a hit on Tuesday.

One possible factor pushing down the sector could be Reynolds America Inc. (RAI) agreeing to buy its competitor Lorillard Inc. (LO) for $25 billion, merging two of the biggest cigarette makers in the world.

The acquisition is designed to combat a slowdown in sales, Reuters reports.

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Other cigarette stocks declining today include Philip Morris International Inc. (PM), down by -1.30% to $84.83, British American Tobacco PLC (BTI), lower by -1.39% to $121.21, and Imperial Tobacco Group PLC (ITYBY), down by -3.24% to $91.15, in late morning trading on Tuesday.

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, good cash flow from operations, expanding profit margins, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

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

  • Despite its growing revenue, the company underperformed as compared with the industry average of 3.1%. Since the same quarter one year prior, revenues slightly increased by 0.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has increased to $2,125.00 million or 18.51% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -30.72%.
  • ALTRIA GROUP INC's earnings per share declined by 14.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ALTRIA GROUP INC increased its bottom line by earning $2.26 versus $2.06 in the prior year. This year, the market expects an improvement in earnings ($2.57 versus $2.26).
  • The gross profit margin for ALTRIA GROUP INC is rather high; currently it is at 57.41%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, MO's net profit margin of 29.31% compares favorably to the industry average.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • You can view the full analysis from the report here: MO Ratings Report
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