Altria Earnings: Volume Better Than Feared, and Cash Flows Remain Stable

Altria reported second-quarter results that were a whisker below our forecasts, while margins improved slightly, representing a decent performance in light of tighter tobacco regulation in the United States and increasingly challenging macroeconomic conditions. The headline numbers of revenue net of excise tax up 1.5% year over year and earnings per share growth of 4% are representative of what we believe Altria can deliver in the medium term, and we are retaining our $52 per share fair value estimate and our wide moat rating. The current market price offers moderate upside to our valuation, and we think Altria could provide a fairly attractive defensive holding, paying a dividend yield of 8%, although the concentration in the U.S. market may increase risk and volatility relative to competitors such as Philip Morris International and British American Tobacco.