Altria Group Inc (NYSE: MO) – With many countries taking extensive measures to aggressively discourage smoking such as excise taxes, restrictions on labeling and advertising, and public bans, it is impressive to see how Altria has managed to remain unharmed. The company has for decades led the industry with its Marlboro brand which has dominating market share among U.S. smokers. CEO Martin Barrington successfully navigated the firm to impressive results in 2015 as demonstrated by the firm’s rising stock prices. So how will next year pan out for the tobacco giants?
Altria Head Quarters, Source: Advisor Analyst
Year review 2015
At the beginning of the year, many investors were skeptical on how well Altria will do due to the upcoming merger of Reynolds American and fellow tobacco rival Lorillard. The merger was thought to have devastating impacts on Altria, as the new player would now have higher bargaining power and increased economies of scale.
However, Altria came out unscratched as evident by the company’s fundamental analysis in 2015. In the first quarter of 2015, revenue jumped 5% as the company managed to boost both prices and volumes. Altria’s second-quarter results continued this upwards trend, as illustrated with a sustainable 3% rise in volume sales up almost 6%. The third quarter also saw decent results with roughly a 5% rise.
The success of Altria could be due to the stocks resembling the behavior of a fixed income security, as it had modest growth potential and high dividend, resembling the coupon payouts of a bond. Thus, as the market was preparing for the rise in interest rates, Altria shares suffered. However, in the second half of the year as these fears seemed to diminish Altria performance improved.
The E-cigarettes boom
Altria future lies in its ability to capitalize on the growing e-cigarettes market. The increased desire among consumers to quit smoking tobacco is the primary driver for the growth of this market. Moreover, the e-cigarettes have more lenient resections and are thought to be less dangerous when comparing to tobacco smoking. In addition, e-Cigarettes are cheaper than traditional cigarettes due to the lack of legitimate taxation on their sale, thus fueling demand.
