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Can Altria Group (MO) Earnings Surprise this Season? - Analyst Blog

Zacks Equity Research
Updated

Altria Group Inc. (MO) is set to report fourth-quarter 2014 results on Jan 30. Last quarter, the company posted in-line results. Let's see how things are shaping up for this announcement.

Factors to Consider

Altria has been reporting decent earnings results for the past few quarters backed by higher operating income and strong pricing power.

However, the company has been seeing soft volume trends for several quarters now due to a general shift away from tobacco products amid accelerating prices of cigarettes and worldwide anti-tobacco campaigns. Moreover, European Union has decided to make plain packaging mandatory for tobacco manufacturers, similar to governments of several other countries. These headwinds should hurt volumes further.

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In Jun 2014, Altria rolled out its flagship e-cigarette brand Mark Ten nationally. Although this is expected to affect the top line positively, higher costs associated with the initiative may offset the effects of the company’s ongoing cost reduction initiative and thus put pressure on the margins.

Earnings Whispers

Our proven model does not conclusively show that Altria is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: ESP for Altria is -1.52% as the Most Accurate estimate is 65 cents while the Zacks Consensus Estimate is higher at 66 cents.

Zacks Rank: Altria has a Zacks Rank #2 (Buy) which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Bebe Stores Inc. (BEBE), with an Earnings ESP of +50.00% and a Zacks Rank #1 (Strong Buy).

Reynolds American Inc. (RAI), with an Earnings ESP of +1.15% and a Zacks Rank #2.

Tyson Foods Inc. (TSN), with an Earnings ESP of +2.78% and a Zacks Rank #3 (Hold).


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ALTRIA GROUP (MO): Free Stock Analysis Report
 
REYNOLDS AMER (RAI): Free Stock Analysis Report
 
BEBE STORES INC (BEBE): Free Stock Analysis Report
 
TYSON FOODS A (TSN): Free Stock Analysis Report
 
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Zacks Investment Research