Altria Has Been Great, Time to Exit 16 comments
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No, it has nothing to do with any "moral objection" to selling cigarettes. I fear the legal landscape is about to change in a very negative way...
First, Altria (MO) said Monday: In a 5-4 decision, the Supreme Court today ruled that a lawsuit involving "lights" cigarettes brought under the Maine Unfair Trade Practices Act was not barred by federal law. "While we had hoped for a dismissal based upon federal preemption, it is important to note that the Supreme Court made no finding of liability. We continue to view these cases as manageable, and the company will assert many of the strong defenses used successfully in the past to defend against this very type of case," said Murray Garnick, Altria Client Services senior vice president and associate general counsel, speaking on behalf of Philip Morris USA. The Court said that the plaintiffs "still must prove that [the companies'] use of 'lights' and 'lowered tar' descriptors in fact violated the state deceptive practices statute." Today's decision came in Altria Group, Inc. v. Good.
The decision is a horrible one in that it now opens all businesses to suits that would have ordinarily been funneled to Federal Court to State Court, where we all know nothing good can happen. At a time when the U.S. is fighting to house its share of international business, increasing litigation costs is not the way to go. But, that is for another post.
Altria has been a wonderful investment bought back in 2000 for a now adjusted $4 a share it has produced shares of Kraft (KFT), sold, and Phillip Morris International (PM), still held. It has also produced thousands of dollars in dividends over the years. I will hold PMI as it yields 5%, has great growth prospects and little ligation risk.
But, I fear things are going to take a turn for the worse here domestically and with already owning shares of the international tobacco operations, it is time to exit. Will the upcoming purchase of UST (UST) help earnings? Yes. Will it offset the upcoming deluge of lawsuits against the company? Not so sure. Having Tom Daschle at HHS is also a bad omen. Whatever grand plans he has for universal health care will undoubtedly be funded in part on the back of cigarette companies through litigation or its customers through oppressive taxes.
The irony of the tax argument is that it is a "negative" not "progressive" tax. We know the less education a person has, the more likely they are to smoke. We also know that those with less education tend to be lower income earners. It this case, raising taxes to these addicts decreases their disposable income to fund grand ideas of health care for all. Nice..."soak the poor".
This is also a result of better opportunities for the funds. Do I think the price of Altria (MO) will double in the next 12-18 months? No. I have a high degree of confidence the price of oil will though. I am buying that through the DBO (DBO) and DXO (DXO) ETFs.
Disclosure: Long PM, DBO, DXO.
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This article has 16 comments:
Barrack Obama smokes. The comment is irrelevant.
More importantly, the govt. is not going to kill the golden goose that is cigarette tax revenues. It will take another generation or so to ween Washington off the cigarette tax (perhaps to be replaced by the bogus carbon tax). Altria has faced this sort of thing before and has prevailed.
This too shall pass.
---Nobody has ever accused the folks at Altria (MO, Fortune 500) and its Philip Morris USA subsidiary of being dummies. (A few other things, sure, but not that.) So when Altria endorsed legislation that would subject tobacco products to FDA regulation - a bill sponsored in the U.S. Senate by longtime tobacco company foe Ted Kennedy - you knew there had to be a reason.
There is. Indeed, the proposed legislation might as well be dubbed the Altria Earnings Protection Act. For starters, the bill prevents the FDA from ever banning cigarettes. Just as important, the wording makes it extremely unlikely that the FDA will ever approve a new cigarette product, because the new entrant would have to be deemed "appropriate for the protection of the public health." The bill also restores states' ability to restrict tobacco advertising. Yet another part of the measure would require the FDA to crack down on sales of counterfeit cigarettes, which have been a drain on Altria earnings for some time. All of these provisions would be beneficial to Altria, as they would help it "lock in its already dominant market share," says Dan Clifton, a political analyst at Strategas Research Partners. (Altria currently controls about half the U.S. tobacco market.)
The upshot is this: If the bill becomes law - and there's reason to think it will, since President-elect Obama was a co-sponsor - Altria's already safe dividend (current yield: 8.5%) will become even safer. So, too, will its earnings growth, which analysts are pegging at 8% for 2009. Throw in the fact that vice stocks are usually recession stalwarts - they've outperformed the S&P by an average of 12 percentage points during the past six recessions, according to Merrill Lynch - and you've got a defensive stock with generous upside. "Given the current environment, both in terms of interest rates and overall uncertainty for almost every company in the market," Citigroup tobacco analyst Adam Spielman writes of Altria, "we think this is worth seizing." ----
money.cnn.com/2008/12/...
This makes little sense. The Altria decision was a narrow decision addressing whether a federal law specific to the tobacco industry preempted state deceptive act statutes. First, the decision has no impact on non-tobacco businesses. Second, it does little to change the overall legal environment for tobacco companies as they are already in litigation in all 50 states, facing common law claims that will almost always be in state as opposed to federal courts (assuming compliance with CAFA). Rather than the chicken little assessment offered here, I see it as more of a "heads we win, tails it takes us longer to win" decision, where tails came up.
S&P MAINTAINS STRONG BUY RECOMMENDATION ON SHARES OF ALTRIA GROUP (MO; 15.21):
Qiote: "Yesterday, the Supreme Court ruled federal labeling laws do not protect companies marketing "light" cigarettes from being sued in state lawsuits for false advertising. We are surprised by the ruling, as a recent trend favored federal over state regulation. While we see this as a setback to the industry and we see several previously delayed state suits now proceeding, WE BELIEVE THE FINANCIAL IMPLICATIONS ARE LIMITED, SINCE MONEY IS NOT SOUGHT FOR PHYSICAL HARM BUT FOR "OVERPAYMENT" BY CONSUMERS. In addition, fraud claims are generally not well suited for class action status. -E. Kwon-CFA "
Just wait to you see what happens to the pps when the UST deal closes. Have a wonderful Christmas and a Happy, Healthy, and Prosperous New Year my friend!!!
I found your article interesting especially since it is in stark contrast to my recent research recommendation of MO (dividendinc.blogspot.c....)
As I remember it, during the year of 2000, the regulatory pressures were more intense than today which is the reason the stock was yielding 10% at the time. The proposals were more draconian and punitative than what were seeing at this time. In fact, the government is even more amiable to big tobacco than ever before.
I'm curious to know if you bought the stock in 2000, as I did at $19 but foolishly sold at $55, what was the distinguishing chacteristic then that compelled you to buy the stock?
Thanks for your thoughts and great article.
-Touc
Financial Provisions
bullet States will receive over $206 billion over 25 years.
bullet Up-front payments - $12.742 billion.
bullet Annual Payments, beginning April 15, 2000 - $183.177 billion through 2025.
bullet Strategic Contribution Fund, 2008-2017 - $8.61 billion.
bullet National Foundation ($250 million over next 10 years).
bullet Public Education Fund (at least $1.45 billion 2000-2003).
bullet State Enforcement Fund ($50 million, one-time payment).
bullet National Association of Attorneys General ($1.5 billion over next 10 years).
Do we really think the states will support killing this sacred cow especially in this environment?
On Dec 17 08:40 AM grandpafirst wrote:
> Sounds as though Obama's thugs are already setting up their payoffs
> to their campaign contributors - the ambulance chasing legal thugs
> who are going to get handsomely paid by the law suits. These excessive
> fees will pay for their pro-bono defense of the Gitmo terrorists.
Now UTS aquisition will be great value with US wines and distributor of wines from Italy and from Chile...
Altria is slowly moving from pure Tobacco....to wine...beer...etc...wi... cash flow generated by cigarettes & cigar sale..Remember Altria had Kraft..General Food and Nabisco...Miller.. in past....Now Altria is moving slowly in Wine and Beer producer....and this is great for long term source of revenue & income....I would not be surpise to see Altria in the futur....to be a very different company....
Watch...
us.rd.yahoo.com/financ...
Also...
us.rd.yahoo.com/financ...
Substantial Shareholdings
As at 14 May 2008, the company had received the following notifications of interests in voting rights of the issued share capital of the
company pursuant to Rule 5.1.2 of the Disclosure and Transparency Rules:
Percent
Number of issued
of shares share capital
Altria Group, Inc. 430,000,000 28.6
BevCo Ltd 225,000,000 15.0
Capital Group International, Inc. 75,945,302 5.0
Public Investment Corporation 55,795,729 3.7
Legal & General Group Plc 45,949,930 3.0
Ordinary shareholding analyses 149
SABMiller plc Annual Report 2008
As you can see Altria own 28.5% of SABMiller this a today clsing price has a value of $74-$75B US
and Altria is evaluated by the market at a value of $34B
Imagine....The market do not give much value for this part....Altria own now...
100% of Philip Morris USA Inc.*
100% of John Middleton Co.*
100% of Philip Morris Capital Corporation*
28.5% economic interest in SABMiller plc as a result of the 2002 Miller Brewing Company merger into South African Breweries plc, which formed SABMiller plc, one of the world's largest brewers.
next 100% of UTS:
www.ustinc.com/about_u.../
www.ustinc.com/index.a...
www.altria.com/about_a...
www.altria.com/about_a...
Now you know why MO is a "CASH COW" LOL