Early in July when we recommended Altria Group (MO) and added it to our Portfolio, we explained our positive outlook on its total return prospects. This was built on a historically high dividend yield, a very low valuation of enterprise value / EBITDA (EV to EBITDA multiple), and the longer term potential for "I quit original smoking”(or IQOS) to stabilize revenues for the company. Those positives were tempered by lower visibility through the pandemic and also IQOS launch delays which appeared to make it more of a 2021 story. With Q2-2020 financial results out, we examine in this report how our thesis shaped up and if MO is still a solid buy.

Q2-2020 Results

Altria re-instituted guidance for the year after having withdrawn it in Q1-2020. Earlier, it had limited visibility on supply disruption as well as the extent to which hoarding was distorting the final numbers. The last few months though have shed light on trends and Altria felt comfortable providing guidance. It now expects adjusted EPS to come in between $4.21 to $4.38 for this year. This would be a growth of 0% to 4% over 2019 adjusted EPS numbers, which is impressive given the current recession, and in light of the fact that world GDP is due for a remarkable drop, in the range of 4%-6%. Most companies have had a hard time keeping EPS numbers positive, so Altria is showing its recession mettle when it is most needed. But how did Altria achieve this?

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