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Altria Shares Pique Analyst Interest Again Following Pullback

Altria Shares Pique Analyst Interest Again Following Pullback
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After striking a 10-year high in June, Altria Group Inc (NYSE: MO) saw a 16-percent pullback driven largely by the Food and Drug Administration’s call to reduce cigarette nicotine.

Cowen Equity Research had initially reacted to the news with a $60 price target and Hold rating, but now, amid signs of a rebound, analysts see an opportunity.

On Tuesday, Cowen upgraded Altria to Outperform and raised its price target to $71.

“We continue to believe that [the] FDA risk is longer-term and do not expect any near term risk to numbers over the next two to three years, but believe that now, the market has digested this risk,” Cowen analyst Vivien Azer wrote in a Tuesday note.

Good News

Azer was also heartened by Altria’s recent price increase, its second this year. Effected last week, the 10-cent hike, prompting comparable raises in British American Tobacco plc and Imperial Brands PLC, is expected to drive sustainable profit growth.

In fact, Azer anticipates it compensating for market share decline in Altria’s lower-end brands.

“With price elasticities generally holding, and with a bulk of MO's offerings at premium price points, we view this [share concession] risk as limited, in light of the more robust pricing that MO announced,” she wrote.

The analyst had already factored market share losses into her 2018 thesis, so the price increases are predicted to inspire profit growth beyond expectations, thus justifying a raise in estimates.

Distant Catalysts

Although acknowledging potential in Altria’s IQOs, the company’s smoke-free, tobacco-heating technology, Cowen does not incorporate such sales into its estimates.

An anticipated “test and learn” product rollout, expected delays in the FDA’s review timeline and a perceived lack of incremental margin warrant the factor’s omittance.

At the time of publication, Altria was trading at $64.70, up 1.4 percent on the day.

Related Link: FDA's Nicotine Cut: Not As Bad As It Looks?

Latest Ratings for MO

Jul 2018Stifel NicolausMaintainsBuyBuy
Jun 2018Morgan StanleyMaintainsEqual-WeightEqual-Weight
Apr 2018RBC CapitalUpgradesSector PerformOutperform

View More Analyst Ratings for MO
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