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Altria’s deal to buy a stake in vaping-startup Juul has had a negative impact on its stock, but the long-term strategic partnership could still pay off.
Elsewhere in the news, quarterly and annual earnings have been a common theme. Intel took second place in the list as the chipmaker posted disappointing earnings. IBM, another technology giant, is seeing its cloud sales slow dramatically, while pharmaceutical giant AbbVie missed fourth-quarter estimates.
Check out our previous edition of trends here.
Altria
Altria Group (MO ) has continued its descent in the new year, despite a deal to buy a stake in e-cigarette maker Juul. The manufacturer of Marlboro cigarettes has seen its stock decline more than 6% year-to-date, extending 12-month losses to more than 35%.
Altria secured a deal to buy a 35% stake in Juul, the emerging vaping company, at the end of 2018 at a whopping valuation of $38 billion. Although the investment is viewed as overvalued by some market watchers, it could still pay off in the long-term. Juul had only $2 billion in revenue in 2018 and a revenue multiple of 19. Altria itself has a sales multiple of a little over 4.
Altria invested in Juul at a time when sales of traditional tobacco products are falling as customers move to healthier alternatives. Facing a host of headwinds and prospects of a dire future, Altria decided to join the vaping party by partnering with Juul as its own e-cigarette products failed to get much traction.
But getting on the vaping train has cost Altria dearly, in no small part because Juul considered itself an industry disruptor and did not want to get in bed with the “enemy.” Time will tell whether Altria’s move was inspired or just a desperate attempt to maintain relevancy.
Because of the abrupt drop and weak valuation, Altria pays a juicy dividend of nearly 7%. Altria has a payout ratio of more than 80%.
Intel
Intel (INTC ) has reported disappointing earnings for the fourth quarter as sales across all its business lines were relatively weak. Intel has experienced an 84% increase in viewership, a little behind Altria.
Earnings for the fourth quarter came in at $1.28 per share, beating estimates of $1.22. Revenues of $18.66 billion, however, were lower by nearly $400 million compared to analyst estimates. Year-over-year, revenue increased around 9%, according to the company. Shares in Intel, which has a dividend yield of 2.71% on a payout ratio of 30%, were slightly down so far this year, after rising less than 2% in 2018.
Client Computing Group and Data Center Group together generated revenues of more than $16 billion during the fourth quarter, while growth from the cloud unit fell to 24%. Intel’s guidance of 87 cents per share in the first quarter of 2019 disappointed analysts, which expected $1.01 on average.
Intel is still searching for a permanent CEO after Brian Krzanich was removed due to a consensual relationship with a company employee. Bob Swan, the company’s finance chief and interim CEO, said on a conference call that the board is continuing to evaluate candidates for “the biggest and best open job on the planet.”
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IBM
International Business Machines (IBM ) has started the year in full force, with its stock skyrocketing on strong financial results. As such, IBM took the third place in the list with a rise in viewership of 68%.
IBM has made a huge bet on cloud computing, acquiring Red Hat for $33 billion in October, as it desperately searches for growth opportunities. Unfortunately for the technology giant, revenue from cloud-based offerings grew by only 12% in for the full year 2018 to $19.2 billion, half the growth rate of the previous year. Total sales for the fourth quarter, meanwhile, dropped by 3% to $21.8 billion, better than analysts had expected.
IBM’s revenues had been falling for six straight years, but in the first half of 2018 the company arrested the decline. It posted two consecutive quarters of revenue increases, largely thanks to its legacy mainframes business. In the third quarter, sales declined again by 2%.
IBM stock has surged 19% this year, but remains down 18% for the past 12 months. The company pays a dividend of 4.67% and its payout ratio is 45.4%.
Check out our complete list of Best Dividend Stocks.
AbbVie
AbbVie (ABBV ) has seen its viewership rise 46% in the past two weeks, as the company confirmed sales of its main drug have been suffering.
The company’s stock has slipped more than 13% this year, largely due to weak financial results. International sales of Humira, the rheumatoid arthritis drug which makes up more than half of its revenues, declined 17% in the fourth quarter, due to competition from generic therapies. In the U.S., the company will not have competition until 2023.
Fourth quarter sales came in at $4.92 billion, a little below expectations, and the company reported a loss of $1.83 billion due to impairment charges related to its development program for a cancer drug. The closing of the promising program has worried investors who had hoped the new batch of cancer drugs would offset a decline in Humira sales.
The Bottom Line
Altria has continued its downward fall this year despite closing a deal to buy a stake in a promising e-cigarette venture. Intel has reported weak earnings, as the company is still searching for a new CEO after Brian Krzanich resigned due to a consensual affair with an employee. IBM’s bet on cloud computing has yet to pay off, with growth slowing dramatically. AbbVie’s tough times ahead were confirmed, as its star drug Humira experienced a dramatic drop in international sales.
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