Do These Factors Support A Rise In Altria Group?

With shares of Altria Group (NYSE:MO) trading around $36, is MO an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Altria Group engages in the manufacture and sale of cigarettes, smokeless products, and wine in the United States and internationally. It offers cigarettes primarily under the Marlboro brand; smokeless tobacco products under the Copenhagen, Skoal, Red Seal, Husky, and Marlboro Snus brand names; cigars principally under the Black & Mild brand; and pipe tobacco. The company also produces and sells blended table wines. Through its range of brands, Altria Group is able to fulfill constant demand for its products around the world. As long as consumers continue to enjoy Altria Group’s products, the company will see consistent profits for years to come.

T = Technicals on the Stock Chart are Strong

Altria Group stock has seen a significant surge higher over the last several years. The stock is now trading near all-time high prices and sees no signs of slowing. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Altria Group is trading above its rising key averages which signal neutral to bullish price action in the near-term.

MO

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Altria Group options may help determine if investors are bullish, neutral, or bearish.

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Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Altria Group Options

17.08%

50%

48%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Altria Group’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Altria Group look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

16.95%

33.97%

-43.86%

185.7%

Revenue Growth (Y-O-Y)

-0.53%

2.62%

3.19%

14.44%

Earnings Reaction

1.15%

-0.05%

-0.09%

0.22%

Altria Group has seen increasing earnings and revenue figures over most of the last four quarters. From these figures, the markets have been indifferent about Altria Group’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Altria Group stock done relative to its peers, Lorillard (NYSE:LO), Reynolds American (NYSE:RAI), Philip Morris (NYSE:PM), and sector?

Altria Group

Lorillard

Reynolds American

Philip Morris

Sector

Year-to-Date Return

16.25%

10.90%

15.52%

11.80%

13.65%

Altria Group has been a relative performance leader, year-to-date.

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Conclusion

Altria Group provides a range of cigarette, cigar, and tobacco products and wine through its brands to consumers around the world. The stock has been in a strong uptrend over the last several years and is now trading at all-time high prices. Earnings and revenue figures have been on the rise for most of the last four quarters which has kept investors satisfied. Relative to its peers and sector, Altria Group has been a performance leader, year-to-date. Look for Altria Group to continue to OUTPERFORM.

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