Altria Earnings: Risks Mount but Valuation Is Becoming Hard to Ignore

Altria reported third-quarter earnings per share of $1.19, in line with our estimate, but volume and revenue were a little light. Investors reacted negatively, with the stock down 8% in the day's trading following the release of results, most likely in response to management's effective lowering of full-year earnings per share guidance to a range of $4.91 to $4.98 to $4.89 to $5.03. The cigarette industry volume decline continues to be faster than its historical trend, and the imminent ban on menthol cigarettes could further accelerate that decline. However, the stock was trading at 8 times the midpoint of 2023 earnings guidance at the close of trading on Oct. 26, implying a dividend yield of 10%, which we believe undervalues the cash flows the business is likely to generate in the future. Although we have lowered our full-year earnings estimate by $0.02, this has no valuation impact and we retain our $52 per share valuation and our wide moat rating.