Will Altria Group Continue Its Quest For Higher Prices?

With shares of Altria Group (NYSE:MO) trading around $35, 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.

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T = Technicals on the Stock Chart are Strong

Altria Group stock has seen a strong bid extending back to the 2008 Financial Crisis. The stock is currently consolidating slightly below all-time high prices so it may be taking a rest here. 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 near 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.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Altria Group Options

19.26%

96%

95%

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

Put IV Skew

Call IV Skew

July Options

Average

Average

August Options

Average

Average

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

185.70%

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 the last four quarters. From these figures, the markets have mostly priced-in Altria Group’s recent earnings announcements.

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P = Excellent Relative Performance Versus Peers and Sector

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

Altria Group

Phillip Morris

Lorillard

Reynolds American

Sector

Year-to-Date Return

13.74%

8.51%

8.69%

15.76%

9.84%

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

Conclusion

Altria Group provides cigarette, cigar, tobacco and wine products to many consumers all around the world. The stock has witnessed a strong bid higher and is now consolidating slightly below all-time high prices. Over the last four quarters, earnings and revenue figures have been on the rise which have been mostly priced-in by investors in the company. Relative to its peers and sector, Altria Group has been a year-to-date performance leader. Look for Altria Group to OUTPERFORM.

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