Seeking Alpha
Profile| Send Message|
( followers)  

The current correction could prove to be a good time for investors looking to open new long-term positions. Altria Group, Inc.'s (NYSE:MO) reported second-quarter earnings of $05.9 per share, an increase of 9.3% year over year. This surpassed the Zacks consensus estimate by two cents. The company also raised dividends by 7.3% from $0.41 to $0.44 cents per share payable to shareholders of record September 14, 2012. Total revenue rose to $6.5 billion, an increase of 9.6% year over year.

Altria's brand-building initiatives on popular brands, such as Marlboro Eighty-Threes, black and mild summer blend and Copenhagen southern blend, seem to be paying off. Gross profits in the second quarter increased 26.5% to $2.5 billion when compared to the same period one year ago. Operating companies' income surged to $1.9 billion from $1.4 billion when compared to the same period 1 year ago. This represents an increase of 42.3%

Net revenue for the cigarette's segment rose by 0.8% year over year to $5.9 billion. Net revenue for the Smokeless product segment rose to $426 million, an increase of 5.4%. Net revenue in the wine segment increased to $128 million, a surge of 10.3% in the second quarter. Volume of wines shipped increased by 2.1%, driven mainly by an increase in exports. Reported and adjusted operating income for the financial service's segment rose to $42 million, an increase of $15 million in the second quarter.

Additional Reasons to be bullish on Altria Group

It has a strong and popular brand portfolio of tobacco and wine. Some of the popular brand names are Marlboro, Virginal Slims, Copenhagen, Chateau Ste, Skoal, etc. It's very popular Marlboro brand has held its market share for several years, despite many attempts from its competitors to erode its market share. The Copenhagen and Skoal brands dominate the smokeless category.

The company has adapted to changes in consumer sentiment. Consumers are gradually shifting to reduced risk and smokeless tobacco products. It has joined forces with Okono A/S (a pharmaceutical research company) that is involved in the development and manufacture of nicotine gum and technologies to produce smokeless nicotine-containing products. This new venture should help the company garner market share in this segment of the industry. Copenhagen and Skoal - both part of the new smokeless tobacco brands - performed well in 2011, with a rising retail share of the market.

Management put into place a very aggressive cost-cutting programme that was launched in 2006 and hit all the desired targets by 2011. In 2007 and 2008, it reduced costs by $640 million. In 2009, it achieved $398 million in cost savings, and in 2010, it achieved $317 million in savings. In 2011, management initiated a new $1-billion cost savings program. This program is expected to deliver annualized savings of $400 million by the end of 2013. It also reduced its work force by 700 as of February 2012 as part of its cost reduction program.

It reported net income of $973 million in the first quarter and $1.44 billion in the second quarter. If this rate is maintained, total net income for the year could top the number $4.1 billion mark, exceeding last year's net income of $3.39 billion by roughly $700 million.

Among the other highlights:

  • Projected year over year growth rates of 7.6% and 7.67% for 2012 and 2013, respectively.
  • EBITDA increased from 6.3 billion in 2009 to $7.05 billion in 2011.
  • Cash flow per share increase from $1.90 in 2009 to $2.18 in 2011.
  • It has a strong levered free cash flow of $4.84 billion.
  • Zacks has a projected EPS of $2.21 and $2.38 for 2012 and 2013, respectively.
  • Annual EPS before NRI increased 1.75 in 2009 to $2.75 in 2011.
  • A 5-year dividend average of 8.00.
  • A good yield of 4.8%.
  • A3-5 year estimated EPS growth rate of 6.42%.
  • A great five year ROE average of 79.9%.
  • A good interest coverage ratio of 4.5.

The company increased the quarterly dividend from $0.41 to $0.44, an increase of 7.3%. This payment is applicable to shareholders of record September 14 and is payable on the 10th of October.

Click to enlarge

Technical outlook

The stock is still in a corrective phase and has a strong layer of support in the $32.00-$32.50 range. It could dip to these levels before trending higher. Consider waiting at least for a test of the recent lows ($33.02) before committing new money to this play.

Company: Altria Group

Basic overview

  1. Quarterly earnings growth = 14.4%
  2. Quarterly revenue growth = 175%
  3. Beta = 0.39
  4. Operating margins= 42%
  5. Profit margins = 25.6%
  6. Relative Strength 52 weeks = 87
  7. Operating cash flow = $3.05 billion
  8. Long-term debt to equity = 3.06

Growth

  1. Net Income ($mil) 12/2011 = 3390
  2. Net Income ($mil) 12/2010 = 3905
  3. Net Income ($mil) 12/2009 = 3206
  4. Net Income Reported Quarterly ($mil) = 1,444
  1. EBITDA ($mil) 12/2011 = 7051
  2. EBITDA ($mil) 12/2010 = 7132
  3. EBITDA ($mil) 12/2009 = 6353
  4. Cash Flow ($/share) 12/2011 = 2.18
  5. Cash Flow ($/share) 12/2010 = 2.03
  6. Cash Flow ($/share) 12/2009 = 1.9
  1. Sales ($mil) 12/2011 = 23800
  2. Sales ($mil) 12/2010 = 24363
  3. Sales ($mil) 12/2009 = 23556
  1. Annual EPS before NRI 12/2007 = 4.38
  2. Annual EPS before NRI 12/2008 = 1.65
  3. Annual EPS before NRI 12/2009 = 1.75
  4. Annual EPS before NRI 12/2010 = 1.9
  5. Annual EPS before NRI 12/2011 = 2.05

Dividend history

  1. Dividend Yield = 4.8
  2. Dividend Yield 5 Year Average = 8.00
  3. Dividend 5 year Growth = - 12

Dividend sustainability

  1. Payout Ratio = 0.80
  2. Payout Ratio 5 Year Average = 0.73

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 6.42
  2. ROE 5 Year Average = 79.95
  3. Return on Investment = 23.9
  4. Current Ratio = 0.90
  5. Current Ratio 5 Year Average = 0.89
  6. Quick Ratio = 0.5
  7. Cash Ratio = 0.67
  8. Interest Coverage = 4.5

Conclusion

This is a great long-term dividend stock to own. It is a true dividend champion, as it has raised its dividends consecutively for 46 years. The stock is currently in a corrective phase and could trade down to the $32.00-$32.50 range before trending higher. Consider waiting for a retest of the $33.00 ranges before jumping. Alternatively, if you do not want to wait for it to test its recent lows, you could sell puts that are slightly out of the money. For example, the January 2012, 34 puts could be sold for $1.51 or better. If the shares are put to your account, your final price will be $32.49.

EPS and Price Vs industry charts obtained from zacks.com. A major portion of the historical/research data used in this article was obtained from zacks.com. Earnings and growth estimates sourced from dailyfianance.com. Earnings vs estimates sourced from smartmoney.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: This article was prepared for Tactical Investor by one of our analysts. We have not received any compensation for expressing the recommendations in this article. We have no business relationships with any of the companies mentioned in this article.

Disclaimer: It is imperative that you do your due diligence and then determine if the above play meets with your risk tolerance levels. The Latin maxim caveat emptor applies - let the buyer beware

Source: Altria Group: The Time To Buy Is Near At Hand