Altria (NYSE: MO) is one of the stock market’s more divisive titles. As a major producer of cigarettes, its continued existence is controversial in a world that has grown more health-conscious and aware of tobacco’s hazards. On the other hand, the company’s traditionally strong financial performances and its high-yielding dividend have attracted countless investors over the years.
It’s safe to say there were more folks taking notice recently when one Wall Street analyst who tracks Altria upgraded her rating of it.
Before the trading day opened on Dec. 6, news broke that Bank of America‘s Lisa Lewandowski had changed her view on Altria. She’s now convinced that it is a buy, where previously she had ranked the tobacco stock as neutral. She also lifted her target price on it significantly, from $55 per share to $65. That new level is nearly 19% higher than the stock’s closing price on Dec. 11.
According to reports, Lewandowski’s move was based on several factors. In her view, the incoming Republican presidential administration will implement policies that will benefit Altria, such as tariffs for foreign producers of a range of products and a potential cut to corporate tax rates.
The analyst also anticipates that better economic prospects for lower-income consumers could juice the convenience sector of the retail industry. As convenience stores are active and busy sellers of tobacco products, this could support Altria’s business. Finally, Lewandowski believes that the market hasn’t fully priced the benefits of management’s cost-cutting program into the stock.
The billion-dollar question for Altria is whether it’ll be able to get past the key headwind pushing against it.
This — it almost goes without saying by now — is the steep, ongoing decline in cigarette smoking in major markets like the U.S. While growth in the use of next-generation offerings like vaping products is filling the sales gap somewhat, they haven’t reached the popularity that cigarettes had in their heyday. Altria and its peers will have to continue working hard to convince investors that such goods have a bright future.
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