What to expect from tobacco giants ahead of Q2 earnings

Two of the biggest tobacco giants Philip Morris (NYSE:PM) and Altria (NYSE:MO) will report their second-quarter earnings by the end of this month.

PM, which is scheduled to post its results on July 22nd, before market opens, is expected to post an EPS of $1.86, marking a 17% year-on-year jump. The consensus revenue estimate is $10.33B, a 9.1% rise compared to the same quarter a year ago.

Earlier this month, Jefferies initiated coverage on the tobacco sector. It issued a Buy rating for PM, arguing that the company will maintain its leadership in driving growth in Heated Tobacco and Oral Nicotine Pouches. This, the analyst believes, will result in a high single-digit EBIT expansion in the medium term.

However, the brokerage assigned an Underperform rating to Altria citing risk to the U.S. Combustibles business from accelerated high single-digit volume declines and added pressure from consumers switching to cheaper products. Moreover, Altria’s leading position in the shrinking Traditional Oral segment is weighing against growth in Modern Oral, it noted.

Altria is scheduled to report its earnings later this month on July 30th, before market opens. Analysts see the company’s EPS rising by 5.3% year-on-year to $1.38 while revenue is forecast to see a 16.4% YY decline to $5.19B.

Seeking Alpha analyst Manika Premsingh, on the other hand, is bullish on both the stocks and has assigned a Buy rating.

Premsingh argued that the highlight of Philip Morris’ performance is the growth in its smoke-free business.

“The company has always been ahead of peers, but the rate at which it continues to pivot towards next-generation products remains notable,” she added.

Over the past two years, Philip Morris has outperformed expectations consistently, beating EPS and revenue estimates 88% of the time. In contrast, Altria has a more mixed track record, surpassing EPS estimates 63% of the time and revenue estimates just 38% of the time.

Over the last 3 months, Philip Morris’ EPS estimates have seen 6 upward revisions and 1 downward move, while revenue estimates have seen 5 upward revisions and 1 downward revision. For Altria, 6 upward revisions have been made for EPS estimates while revenue estimates have seen 1 upward revision and 4 downward adjustments.

On a YTD basis, PM stock has raced nearly 49% while Altria has seen a humble 17.62% rise.