Buy Altria(MO) Because Recession Never Stops Smokers to Smoke

According to ClusterStock, A Citi's Analyst is worried that cigarette sales volume in the US will be weak. His 43c EPS forecast assumes modest price increases in 2Q. (Consensus is 45c). If the 2-for-1 promotions returned to their 4Q07 level and the survey is right on the price increase, his estimate may be 3-4c too low. Furthermore, any positive sign on pricing would support our investment thesis that MO will be able to grow EPS despite volume declines, through pricing, cost saves and buybacks.

Tobacco companies remain to grow revenues and widen margins since they can increase prices faster than volumes fall. In Italy (PMI's largest mkt) prices (ex tax) have risen at 5% CAGR in the last 4 years, while volumes have fallen 2%. With sales up and costs down, profit increases. In the UK, Marlboro retails at $11, and retail prices are still rising at 4% a year, in-line with wages, so affordability is constant. This implies US prices have plenty of room to increase.

Altria(MO) will report its Q3 Earning on July 31, before market open. Currently, the MO's Chart is forming a falling wedge pattern that is indicated that the stock price is ready to bounce back. Here is:



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