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By David Gibbs

Altria Group Inc. (NYSE: MO) surprised the street yet again this past Wednesday when it reported upside earnings before the bell. While some on the Street had begun to doubt the investment thesis behind MO following the spin-off of its international business into the independently-traded Philip Morris International (NYSE: PM), MO’s earnings power hasn’t skipped a beat. Shares continue to trade near all-time highs and recent major moves into the smokeless tobacco market are already paying off.

Earnings: Q3 profits of $1.13 billion ($0.54/share), a 28% increase vs. 3Q09 profits of $882 million ($0.42/share).

Revenue: Up 3.3% YoY excluding excise taxes to $4.5 billion.

Actual vs. Wall St. Expectations: MO beat on EPS and revs as analysts were expecting $0.52/share of earnings on $4.42 billion in revenue.

Notable Stats: Earnings out of MO’s UST smokeless division increased 65% YoY. MO’s overall smokeless-tobacco market share rose 1.9% YoY to 55.6%.

Cigarette earnings grew 15% YoY while revenue rose 1.8% despite a 2.4% drop in volume. Marlboro’s market share rose 0.7% to 42.6%.

Gross margins rose to 38.7% from 36.3%.

Did You Hear That? CEO Michael Szymanczyk noted on the call that, “this strong third-quarter EPS growth builds on our solid business results from the first half of the year,” adding that, “through the first nine months of 2010, our adjusted earnings per share are up 6.6%, giving us confidence that we can achieve our EPS growth objective for the year.”

Technicals: After breaking out of 10-week base on 7/23, MO hasn’t looked back, adding on nearly 13% over the following months. Shares are currently trading above their 20, 50 and 200-day moving averages and all the indicators have an upward slope, making for a very strong chart. However, shares may be a bit extended at the moment, and waiting for a pullback to the 20-day moving average might be your best bet in terms of entry points.

Commentary: MO is up 27% on the year vs. a 6.3% rise in the S&P (NYSE: SPY). Still, despite the impressive equity appreciation, shares are carrying a 6.10% dividend. Given the investment community’s well-founded skepticism regarding the medium-term outlook for equities, what more could you ask for?

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Disclosure: No holdings in MO.

Source: Altria’s Big Bet on Smokeless Already Pays Off