Analyst Michael Lavery reiterated an Overweight rating on
(ticker: MO) Friday, while raising his price target by $10, to $57. He believes that Altria can deliver average earnings per share growth as high as 5% this year and next, helped by stronger pricing, better cost savings, and share repurchases in 2021.
He is also upbeat about the continued rollout of iQOS, the heat-not-burn modified risk product developed by
Philip Morris International
(PM), which Altria sells in the U.S. He notes that iQOS “continues to steadily grow sales and market share in the US.” His estimates put it at 0.2% to 0.3% of the cigarette category in Atlanta—the city where it was first introduced domestically—a figure that would put it ahead of early trends Philip Morris saw in Italy, and on par with other major markets like Russia.
When Philip Morris and Altria split more than a decade ago, it was so the former would market their shared brands and products overseas, while Altria sells them in the U.S., an agreement that remains today.
IQOS’s initial success in Atlanta is especially promising, Lavery notes, because the product has gained impressive market share in other nations where it previously launched, and a similar acceleration in the U.S. would bode well for Altria’s profits. While this will take time, word-of-mouth advertising and increased brand awareness among retailers and consumers should help the U.S. see patterns comparable to other markets.
In addition, Lavery attributes his new price target to what he sees as “moderating political risks,” in terms of a corporate tax increase, that should allow the shares to trade at a higher multiple.
Altria was up 0.1%, to $42.99, in recent trading.
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