Altria Undervalued Prior to Philip Morris Spinoff

Altria’s (MO) shares continue to look undervalued relative to U.S and international tobacco company peers. The upcoming spin-off of PMI should convince the market to value the two pieces at least in line with respective peer groups. Goldman raised its 12-month price target to $89, reflecting the recent increase in peer group multiples. The stock should rally in the coming weeks as the company approaches $78 level and breaks chart resistance. Here are few ideas about what to expect and some dates set by Goldman:

1. Altria formally approves the PMI spin-off on 1/30,
2. It announces a share buyback and cost restructuring around mid-February
3. Embarks on an investor road-show in early March.
4. On January 30, MO reports 4Q07 earnings and final details of PMI spin-off. Don’t expect a share buyback/cost restructuring announcement at this point, but the market should react favorably to the Board’s”official” spin-off approval and indication of a mid-late March distribution date.
5. Expect MO to file its final Form 10 with the SEC, and announce a share buyback program for each entity and sizable cost restructuring in mid-Februrary.
6. Management will be on the road meeting with investors in several major cities before the distribution date, which should be in mid-to-late March.
7. PMI might be being added to the S&P 500 Index before the distribution date.

For more understanding on the subject there is a great book on the Cigarette Wars: Ashes to Ashes: America’s Hundred-Year Cigarette War, the Public Health, and the Unabashed Triumph of Philip Morris

Key risks: Governments attempting to tax the firm more aggressively world-wide.

Disclosure: I do not own any MO securities

Comments

[Andrew Phil...:]

This article was not written by Ivanoff, it is simply a virtual copy of gs's recent research.....

2008 Jan 09 11:23 PM