Altria's Slip in Volume During Q3 Shows Importance of Heated Tobacco Strategy

Altria reported weak cigarette volume and revenue in the third quarter of 2022, although positive mix meant that operating income of $3.1 billion and earnings per share of $1.28 were in line with our estimates. Of more significance, the company announced a strategic partnership with Japan Tobacco to commercialize heated tobacco in the U.S. Neither third-quarter performance nor the joint venture with JT have an impact on our fair value estimate of $52, and we reiterate our wide moat rating. Altria appeared somewhat undervalued at the close of business on 31 Oct. 31 and we expect the strength in its pricing power, evident again in the third quarter, to ensure Altria's business is defensive in the event of a recession in the U.S.