Altria: Tobacco Stock at a Discount

Tobacco companies are hated by the public but the stocks are very tempting financially. Over the weekend, Barron’s looked at Altria (MO):

At around 18.50, Altria has one of the lowest price/earnings ratios in the global cigarette industry. It also has one of the highest dividend yields: 7.3%. The stock trades for 10.6 times projected 2009 profits of $1.77 a share and 10 times estimated 2010 earnings of $1.87. Even Reynolds American (RAI), with weaker brands, sports a slightly higher P/E on a 2010 basis.

At its current price, Altria's stock appears to have little downside and significant appreciation potential. One of the company's prime assets is a 27% stake in international brewer SABMiller, which is worth $11.5 billion, or 30% of Altria's current market value.

Altria has lost some cachet in the investment community since the 2008 separation of its international tobacco operations. The faster-growing spinoff, Philip Morris International (PM), trades around 49, or for 15 times projected 2009 profits, a sizable premium to Altria.

Those are very solid numbers. I’d add that the company has consistently met or beaten earnings for the past few quarters, so it may be going for even less than 10 times next year’s earnings.

Comments

[PastTense:]

And what happens if Altria loses additional major lung cancer lawsuits?

Nov 09 11:42 AM

[fcharlie:]

The same thing that always happens, they appeal, win, and raise the dividend.


On Nov 09 11:42 AM PastTense wrote:

> And what happens if Altria loses additional major lung cancer lawsuits?

Nov 09 11:50 AM

[cranmer:]

As time passes, those kinds of lawsuits will not be as viable. Anyways, MO has always had that risk.

Nov 09 12:43 PM

[user396040:]

The politics of this issue are interesting. The states have a large settlement with Altria and other tobacco companies and rely on continuing payments as a source of revenue so that state governments have a strong interest in avoiding a situation in which Altria is driven into bankruptcy by a lawsuit.

Nov 09 02:55 PM

[pitboss33704:]

User - You have hit on the delicious (?) irony on fhe state's " fight " against big tobacco - don't forget , either , the taxes generated for the states by the sale of tobacco products ...

Nov 09 03:44 PM

[The Lonely ...:]

www.lonelyvalue.com/20...

The real value at Altria (besides its amazing cash flow) is its massive stake in SAB Miller. Why is it that few people are aware of it?

The above link discusses it.

Enjoy!

And user396... is absolutely correct on the lawsuit issue.

Nov 09 09:28 PM

[TJ Schoenlein:]

The way I see it.. tobacco is nasty.. spiting, chewing, inhaling, all the same to me.. but.. many people like, love, need it so it makes us money. Mo & RAI make money and they consistently pay dividends every three months to me. That's what it all about here.

Nov 09 09:47 PM

[bobbybutte:]

As a person whose fianncial independence was shaped by investments in sin stocks I can nsay with certaintity the author is correct

as you could see in the Novemebr Issue of Newsmax page 90 my portfolio compounded in this supposed lost decade at 17% annalaly

Find stocks with consistent cash flows at great prices and the power of reinvested dividends and compound interest will help you become financially independent
I know its possible because it happened to me.peace

Nov 10 08:42 AM

[slam stocks:]

MO is still considered undervalued in this hot market by 16%.

The company makes lots of $$$ and they generously reward shareholders for their support with a 7.2% Dividend that continues to increase by 6+% annually. Assuming the dividend is not cut, with various DRIPs etc. you could receive without any capital appreciation a 14.4% annual yield in just 12 years.

Nov 11 01:34 AM

[Advill:]

The last lawsuits were designed in a way that having a resolution (it was in 2006 i think) and a guilty sentence they closed the door for future legal actions in US.

rgds


On Nov 09 11:42 AM PastTense wrote:

> And what happens if Altria loses additional major lung cancer lawsuits?

Nov 14 11:56 AM