Will Altria Group Burn Out Long Term? 22 comments
-
Font Size:
-
Print
- TweetThis
US-based Altria Group (MO) is a holding company with subsidiaries operating in tobacco products and alcohol. Altria is also the largest shareholder in UK-listed brewer, SABMiller plc (SBMRY.PK), with a 27.37% stake. The non-cyclical nature of the company's products prevented Altria shares from dropping as far as the broader market during the past year. However, the company's stock has lagged behind the market during the strong recovery over the past six months.
Altria Group's business lines are under constant threat of regulation. Altria owns Phillip Morris USA, the largest tobacco maker in the US. In June, President Obama enacted a law giving the Food and Drug Administration authority over the tobacco industry. Altria supported the move, while rivals such as Reynolds American Inc (RAI) fought the regulation and have challenged the law, stating that it violates their right to free speech. One of the moves that the FDA has made since the law came into effect was the September 22nd ban on all sales of flavored cigarettes excluding menthol. Altria's Phillip Morris USA was unaffected by the ban, while another one of its subsidiaries, John Middleton, makes flavored cigars, which continue to be legal and may benefit from the ban.
During the second quarter of 2009, Altria saw a 8.9% increase in diluted earnings per share due to stronger profits in its cigarette businesses, the acquisition of UST LLC, and higher earnings from its SABMiller equity investment. Nevertheless, when assessing the company as a long-term investment, we should take into account its long-term fundamentals. After splitting the company's key long-term fundamental indicators into three groups (Business, Management, Price-Attractiveness) we ran them though our proprietary StockMarks rating models, placing the company on a scale of 1-100. The chart below shows Altria Group's ratings for the three fundamental groups as well as a combined 'Total StockMark' rating since mid-2005.
The business rating is the weakest of Altria's three sub-ratings as the company's long-term growth rates fall below the US market average. Although the price rating rated above average duing the period between mid 2006 and the end of 2008, the continued weak investor sentiment towards the stock has caused the SMP to decrease steadily since the start of the year.
Altria rates higher than its US competitors, including Reynolds American Inc, Vector Group Ltd (VGR) and Lorillard Inc (LO). The company also out-rates its major UK-based competitors, Imperial Tobacco PLC (ITYBY.PK) and British American Tobacco (BTI). However, we maintain our negative outlook on the tobacco industry as regulations limiting the companies' operations continue to strengthen.
Overall, we currently believe Altria to be a below-average long term investment.
A summary of our current StockMarks ratings for Altria Group is available here
Disclosure: No positions
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 22 comments:
7 October, the COT meeting on 26 October and the COC meeting on 18
November 2004.
"5. The Committees commented that tobacco smoke was a highly complex chemical mixture and that the causative agents for smoke induced diseases (such as cardiovascular disease, cancer, effects on reproduction and on offspring) was unknown. The mechanisms by which tobacco induced adverse effects were not established. The best information related to tobacco smoke - induced lung cancer, but even in this instance a detailed mechanism was not available. The Committees therefore agreed that on the basis of current knowledge it would be very difficult to identify a toxicological testing strategy or a biomonitoring approach for use in volunteer studies with smokers where the end-points determined or biomarkers measured were predictive of the overall burden of tobacco-induced adverse disease."
cot.food.gov.uk/pdfs/c...
In other words ... our first hand smoke theory is so lame we can't even design a bogus lab experiment to prove it. In fact ... we don't even know how tobacco does all of the magical things we claim it does.
The greatest threat to the second hand theory is the weakness of the first hand theory.
There can never be a safer cigarette ... safe is safe!©
Tobacco consumption is increasing world-wide with markets in developing countries especially Asia showing the best growth.
Decreased competition in the production and markings of products bodes well for the establishment companies you mention. The leaf merchant companies are better suited to benefit. My best play is UVV another more speculative play would be AOI.
In a worrisome economy so much dependent on the consumer, staple companies in the food and tobacco industries are the ones to have in the portfolio for dependable growth and dividend income.
The largest negative I see is the constant threat of litigation.
Sure cigarette volumes will continue to go down, however they will still be offset by the smokeless market and the number of people who do continue to start smoking. I will be long in the ground before MO is forced to go out of business due to no one using their products.
In the meantime, I can collect a 7% annual yeild, when combined with lets say a meager 5% capital appreciation in the stock itself would give me a total return of 12% / year for the foreseeable future.
(Lets assume its annualized to account for good and bad stock price years)
Oh sure, the overall phony stock market itself, juiced by FED/ Treasury money will far outpace MO, however when that baby crashes and burns, MO will have held its value.
Not being a gambler myself, and having a portfolio that is at 2009 levels, not at 1999 levels like average Americans have (thanks to all the bubbles and crashes) proves to me that investing as an "investor" pays VS investing like a gambler.
Having a real investment plan also helps.
Note: I am long MO and PM as "investments".
compdivplan.com
Black people smoke menthol.
Hate me if you want to, but it's the truth.
All that matters is that Altria is growing. The dividend alone provides the return. The growth in the dividend takes you from an average to an above average investment. Add in the safety of MO's cash flows and you have a superior investment that will continue to trounce the market over time.
As already mentioned, their strong cash flow and investment in alternative products should keep them growing and their dividend growing. They may underperform the market in stock price, but with the dividend they will be a solid long term investment.
1) the stock did not drop as much during the fall off as you said so of course it has not risen as fast during the run up
2) if you bought the stock when this decade started despite the fact the Dow is down in that time frame the stock has compounded at about 18% annually which is not so bad
It is clear that you know very little about Altria but Im glad you and many others have predcited the stocks demise
It has enabled me to avoid workinga job and has helped me achieve financial security
Please remember that I am not saying to short Altria. I am saying that our models suggest the shares will underperform the market over the long-term.
Yes the model is quantitative, and therefore cannot fully take into account the economic environment of the company until it is reflected in the company's fundamentals. While some of you may remain bullish on the industry, Altria stated in its own results that industry-wide cigarette volumes fell 8% when adjusted for trade inventories during the second quarter. Philip Morris saw a 12% decline on the same basis.
Altria's marketshare and sales volume in cigarettes declined over the past six months among all of its brands. Cigarette revenue net of excise taxes fell 4.1% during the first half (yes, margins increased, but there is a limit to how far volume can decrease before it's just one guy paying $6B for his pack of cigarettes). Similarly, smokeless tobacco products saw declines in market share until Altria cut prices late in the first quarter. These details are all obvious in the company's second quarter earnings.
There are valid concerns that the company will have to cut the price of its top selling Marlboro brand in order to remain competitive, putting further pressure on revenue.
I am sorry I did not buy this one years ago! As someone said...politically incorrect action! But give me the dividends anytime!
BTW...there is a Spell checker on here!
On Oct 09 12:50 PM 13958 wrote:
> Altria....smokers will be smokers and the tendency is to grow international.
> I just bought MO for its dividend (I am close to retirement), its
> cash flow is great, and the US government just handed MO an almost
> "oligoply" position in the stuff..(that's what I call a "golden platter"
> of quasi-protection....fu... its other inventments in liquor, beer,
> et al.....should smooth out nicely and give MO a long-term "open-door"
> if things get, or were to get worse!
> I am sorry I did not buy this one years ago! As someone said...politically
> incorrect action! But give me the dividends anytime!
> BTW...there is a Spell checker on here!
1. MO has an oligopoly with approx. 50% market share. All new limits to advertising help MO because it prevents competitors from gaining market share.
2. Litigation has been around for 30 years and MO always wins in the end. The major cases by the states and government have mostly been settled.
3. Increased regulation is not a threat. The recent FDA bill was written by MO and some anti-tobacco group associated with kids. Any new regulation on tobacco will likely be written by MO for the benefit of MO. That is why reynolds and Lorillard are fighting this bill.
4. The government and states needs MO to continue to do well so that they get their excise taxes and MSA payments. Most states have already issued bonds backed by the MSA payments.
5. Tobacco is an addictive product and people will always buy their cigs even if we fall into a depression. Yes volumes are falling but they can easily model for that and raise prices accordingly. Volumes have been falling for 25 years yet MO's earnings increase every year.
6. MO has an excellent 7.8% yield and the BOD always raises the dividend by 8-10% per year.
7. There will never be any new competitors in the US tobacco industry. Read the MSA with the states which say that any new competitor would have to start making mandatory payments to the states for future health claims. That creates a pretty strong moat around the industry.
Long MO and consider it a fixed income investment with an increasing income stream.
On Oct 09 11:27 AM bobbybutte wrote:
> As a person who has achieved financial independence SOLELY from my
> investment in Altria I feel the need to add a few things
>
> 1) the stock did not drop as much during the fall off as you said
> so of course it has not risen as fast during the run up
>
> 2) if you bought the stock when this decade started despite the fact
> the Dow is down in that time frame the stock has compounded at about
> 18% annually which is not so bad
>
> It is clear that you know very little about Altria but Im glad you
> and many others have predcited the stocks demise
>
> It has enabled me to avoid workinga job and has helped me achieve
> financial security
2. I wouldn't call settling for millions of dollars 'winning', but people have always found new reasons to sue, such as the cases over 'light' cigarettes, which are ongoing.
3. The bill gives regulatory power to the FDA, not MO - MO can lobby all it wants but the power is in the hands of the FDA.
4. True for now - although there are always new potential sources of taxes, such as bringing gas prices in-line with the rest of the world.
5. I think that declining volumes show that people will not continue to buy cigarettes during a depression. Also - they have had to cut prices under the current conditions while taxes have increased. Yes smoking is addictive, which means that every customer that quits represents not just 1 lost sale, but a lifetime of lost sales. During 2007 (the last data available) smokers as a percentage of the population decreased by an estimated 1.6%, compared to 0.89% population growth. This means that smokers are quitting/dying faster than they can be replaced with new ones. So smokers are not just buying less, there are less of them.
6. Regarding the dividend, you really have to ask yourself whether the underlying business warrants a continually increasing dividend. Declining prices, lower volume, higher taxes, decreasing market share and increased regulation does not look like a recipe for success to me. Feel free to disagree.
7. While there are high barriers to entry, market share must be protected from existing competitors, something that Altria is struggling with.
On Oct 09 05:56 PM Nathaniel C wrote:
> MO is one of the better and safer investments for the long-term.
> In fact if I had to choose whether to own government bonds or MO
> stock I would pick MO.
>
> 1. MO has an oligopoly with approx. 50% market share. All new limits
> to advertising help MO because it prevents competitors from gaining
> market share.
>
> 2. Litigation has been around for 30 years and MO always wins in
> the end. The major cases by the states and government have mostly
> been settled.
>
> 3. Increased regulation is not a threat. The recent FDA bill was
> written by MO and some anti-tobacco group associated with kids. Any
> new regulation on tobacco will likely be written by MO for the benefit
> of MO. That is why reynolds and Lorillard are fighting this bill.
>
>
> 4. The government and states needs MO to continue to do well so that
> they get their excise taxes and MSA payments. Most states have already
> issued bonds backed by the MSA payments.
>
> 5. Tobacco is an addictive product and people will always buy their
> cigs even if we fall into a depression. Yes volumes are falling but
> they can easily model for that and raise prices accordingly. Volumes
> have been falling for 25 years yet MO's earnings increase every year.
>
>
> 6. MO has an excellent 7.8% yield and the BOD always raises the dividend
> by 8-10% per year.
>
> 7. There will never be any new competitors in the US tobacco industry.
> Read the MSA with the states which say that any new competitor would
> have to start making mandatory payments to the states for future
> health claims. That creates a pretty strong moat around the industry.
>
>
> Long MO and consider it a fixed income investment with an increasing
> income stream.
Money paid out in settlements come out of the states settlement money so it costs the companies nothing extra
No offense to the author or anyone else but this stock helped me become financially independent and i am sure that few if any understand it as well as me no offense just keeping it real.peace
While I worked there, for Miller Brewing, I had the same slogan for 20 years "hate cigarettes, love the profit sharing and the dividends".
Bobby----do you think Altria is undervalued at thi time? How about PM?
On Oct 09 11:27 AM bobbybutte wrote:
> As a person who has achieved financial independence SOLELY from my
> investment in Altria I feel the need to add a few things
>
> 1) the stock did not drop as much during the fall off as you said
> so of course it has not risen as fast during the run up
>
> 2) if you bought the stock when this decade started despite the fact
> the Dow is down in that time frame the stock has compounded at about
> 18% annually which is not so bad
>
> It is clear that you know very little about Altria but Im glad you
> and many others have predcited the stocks demise
>
> It has enabled me to avoid workinga job and has helped me achieve
> financial security