Given the increased likelihood of a recession in the U.S. and expectations for slowing GDP growth, Goldman Sachs’ Judy Hong thinks investors will continue to rotate into defensive sectors like tobacco in 2008. As a result, the analyst boosted her view on U.S. tobacco names to “attractive” from “neutral.”
She recently upgraded Altria Group Inc. (MO) to a “buy,” and hiked her price target by $6 to $85 per share, expecting 2008 earnings to get a boost from continued strength in the Euro and the Yen against the U.S. dollar. Altria shares closed up 2.7% to $73.35 on Tuesday following the upgrade.
Altria is “well-positioned in the current macro backdrop that should favor large-cap companies with high exposure to international markets,” Ms. Hong said in a note to clients.
She also highlighted an announcement regarding the spin-off of its wholly-owned Phillip Morris International subsidiary due on January 30, 2008, as well as a likely share buyback announcement in February.
The analyst also reiterated her “buy” ratings on fellow tobacco companies UST Inc. (UST), and Carolina Group (CG). She considers CG the best positioned cigarette company in the U.S., and expects it to move to a near-100% dividend payout policy in the next three months.
MO vs. UST vs. CG 1-yr chart:
