By Peet Serfontein, Hashmeel Suka
We initiate a long position with a target price of $48 and a stop-loss of $42.
Altria is one of the largest producers of tobacco and cigars/cigarettes in the US. The company, through its Philip Morris USA subsidiary (not to be mistaken with Philip Morris International), manufactures and sells some of the world's leading cigarette brands including Marlboro, Benson & Hedges, and Chesterfield. The company is also a leading purveyor of cigars and pipe tobacco (through the John Middleton Company) as well as smokeless tobacco products (through the US Smokeless Tobacco Company, USSTC).
The group's fundamental performance has been relatively steady over the past five years, with revenue and adjusted EPS (on a compounded annual basis) growing 1% and 4%, respectively. This is primarily due to its inherent defensive nature. In essence, consumer demand for tobacco and related products has been mostly stable (on balance) throughout this period, despite various headwinds.
Technically, the stock price is forming a falling wedge pattern (refer to the first chart), which is a bullish indicator that typically occurs after a prolonged downward trend. The pattern is formed by the convergence of two trend lines (support and resistance) that depict the price action of lower highs and lower lows. This is seen as a bullish signal as it usually occurs amid fading selling pressure, suggesting that the downtrend is losing momentum and that a break towards the upside is imminent.
The stock is trading above its 200-day simple moving average of ~$42.20 and we maintain a bullish stance.
Share Information
| Share Code | MO US |
|---|---|
| Industry | Food, Beverage & Tobacco |
| Market Capital (USD) | 74.8 billion |
| One Year Total Return | 2.01% |
| Return Year-to-Date | 10.39% |
| Current Price (USD) | 43.54 |
| 52 Week High (USD) | 48.04 |
| 52 Week Low (USD) | 39.07 |
| Financial Year End | December |
| The stock has gained some momentum this year, with various technical indicators suggesting fur ther upside to come. |
Consensus expectations
(Bloomberg)
| FY23 | FY24E | FY25E | FY26E | |
|---|---|---|---|---|
| Headline Earnings per Share (USD) | 4.95 | 5.08 | 5.24 | 5.45 |
| Growth (%) | 2.71 | 3.03 | 3.97 | |
| Dividend Per Share (USD) | 3.84 | 4.03 | 4.15 | 4.31 |
| Growth (%) | 4.92 | 2.93 | 3.98 | |
| Forward PE (times) | 8.48 | 8.21 | 7.99 | |
| Forward Dividend Yield (%) | 9.34 | 9.64 | 9.90 | |
| Earnings have come under a bit of pressure recently, though the group's medium to long-term prospects remain steady, complemented by a healthy expected dividend yield. | ||||
Rationale
Technical Analysis:
Long-term fundamental view:
| Share Name and position | KDP - Take Profit (Close the position) | CSCO - MS - Buy (Continue to hold) | KHC - Buy (Continue to hold) |
|---|---|---|---|
| Entry | 31.13 | 89.14 | 37.16 |
| Current | 33.84 | 92.56 | 38.37 |
| Movement | 8.7% | 3.8% | 3.3% |
| We closed the trade early to lock in a profit and reduce portfolio exposure. |
The development of a falling wedge pattern in an uptrend is encouraging. The stock is above the 200-day simple moving average. Upside price momentum is supportive.
Our profit target is $101, with a trailing stop-loss of $88. Exit the position around 14 August 2024. |
A price developing a base pattern remains attractive. The stock remains above its 200-day moving average. Continued upside momentum is supportive.
Our profit target is $43, with a trailing stop-loss of $37. Exit the position around 14 August 2024. |
| Share Name and position | PEP - Buy (Continue to hold) | PNW - Buy (Continue to hold) | VWO - Buy (Continue to hold) |
|---|---|---|---|
| Entry | 171.44 | 73.02 | 41.57 |
| Current | 176.6 | 74.20 | 41.84 |
| Movement | 3.1% | 1.6% | 0.6% |
|
Price action above key support remains of interest. The stock crossed above its 200-day moving average, which is encouraging. Emerging upside momentum is supportive.
Our profit target is $190, with a trailing stop-loss of $171.50. Exit the trade by 26 June 2024. |
A developing symmetrical triangle remains of interest. The stock is testing its 200-day moving average, and we maintain our counter trend strategy. Emerging upside momentum is supportive.
Our profit target is $81, with a trailing stop-loss of $71. Exit the trade by 5 July 2024. |
A developing symmetrical triangle remains of interest. The ETF is above the 200-day simple moving average. Upside momentum has regained strength, which is encouraging.
Our profit target is $48, with a stop-loss of $40.50. Exit the position around 14 June 2024. |
