Altria's Problems Baked Into Price, Now A Buy At RBC

Altria Group Inc MO has declined 20 percent year-to-date, and one Street expert thinks the new valuation well accounts for enduring fundamental and macro concerns.

The Rating

RBC Capital Markets analyst Nik Modi upgraded Altria to Outperform and maintained a $65 price target on the stock.

The Thesis

By RBC’s assessment, Altria appears hedged from the three largest challenges stunting consumer packaged goods (CPG).

“MO also offers CPG investors a scarce combination of positive pricing, minimal exposure to rising costs and insulation from the retail evolution that is plaguing the broader CPG space,” Modi wrote in a note.

The analyst views concerns over regulation, competition from JUUL, IQOs threats, diminished hope for a bid by Philip Morris International Inc. PM, and Marlboro share concessions overdone.

The Marlboro brand’s losses, driven by a drop in infrequent-user sales and reduced regularity by heavy smokers, are considered staunchable through trade contract revisions and promotions.

“While we understand that making valuation calls in consumer staples has not really worked over the past few years, we believe the current state of the overall CPG space makes MO an attractive place to put new money within our space,” the analyst wrote.

Price Action

At time of publication, Altria was trading slighlty higher at $56.38.

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