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Here is a look at how Altira Group (NYSE:MO) fares in ModernGraham's opinion, based on an updated and modernized version of Benjamin Graham's requirements of defensive and enterprising investors from The Intelligent Investor:

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition - current ratio greater than 2 - FAIL
  3. Earnings Stability - positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record - has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
  6. Moderate PEmg ratio - PEmg is less than 20 - PASS
  7. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability - positive earnings per share for at least 5 years - PASS
  4. Dividend Record - currently pays a dividend - PASS
  5. Earnings growth - EPSmg greater than 5 years ago - FAIL

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Opinion Overvalued
Value Based on 3% Growth $30.33
Value Based on 0% Growth $17.78
Market Implied Growth Rate 4.60%
Net Current Asset Value (NCAV) -$12.21
PEmg 17.70
Current Ratio 0.91
PB Ratio 18.61

Balance Sheet - 9/30/2013

Current Assets $7,549,000,000
Current Liabilities $8,337,000,000
Total Debt $12,892,000,000
Total Assets $35,950,000,000
Intangible Assets $17,237,000,000
Total Liabilities $31,969,000,000
Outstanding Shares 2,000,290,000

Earnings Per Share

2013 (estimate) $2.58
2012 $2.07
2011 $1.64
2010 $1.87
2009 $1.54
2008 $1.48
2007 $4.33
2006 $5.71
2005 $5.10
2004 $4.57
2003 $4.52

Earnings Per Share - ModernGraham

2013 (estimate) $2.09
2012 $1.81
2011 $1.84
2010 $2.29
2009 $2.88
2008 $3.77

Conclusion:

Altria Group is a company that Defensive Investors and Enterprising Investors should shy away from for the near future. The company has a poor current ratio, has not achieved sufficient growth over either the 5-year or 10-year historical period, and is trading at a high PB ratio. Value investors seeking to follow Benjamin Graham's methods should seek other opportunities, starting with a review of companies that pass the ModernGraham requirements. From a valuation perspective, the company's poor level of growth over the last 5 years does not support much of a value. EPSmg (normalized earnings) have actually dropped from $2.88 in 2009 to an estimated $2.09 for 2013. This indicates that any value must come from the balance sheet, rather than the earnings, but the net current asset value is also very poor for this company. Therefore, the company would appear to be overvalued presently.

Disclaimer: The author did not hold a position in Altria Group (MO) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Source: ModernGraham Valuation Of Altria Group