Big Tobacco: A Comparative Analysis For The Growth And Income Investor

| About: Altria Group, (MO)

On Thursday, September 20th, analysts at Citigroup upgraded shares of Altria Group (NYSE:MO). The firm raised its rating on the stock from Neutral to Buy and set a $39.00/share price target. As a result of the upgrade, shares of MO have reacted quite nicely, trading up 2.38% since the opening of trading on Thursday. That said I wanted to take a closer look at the Tobacco industry as a whole and not only examine the profit and operating margins of Altria Group, but compare them to some of the other names in the industry such as Philip Morris International (NYSE:PM), Reynolds American Inc. (NYSE:RAI), and Lorillard, Inc. (NYSE:LO).

Overview: Altria Group Inc.

Altria Group, Inc., through its subsidiaries, engages in the manufacture and sale of cigarettes, smokeless products, and wine in the United States and internationally. It offers cigarettes primarily under the Marlboro brand; smokeless tobacco products under the Copenhagen, Skoal, Red Seal, Husky, and Marlboro Snus brands; cigars principally under the Black & Mild brand; and pipe tobacco. The company also produces and sells blended table wines under the Chateau Ste. Michelle and Columbia Crest names; and distributes Antinori and Villa Maria Estate wines, and Champagne Nicolas Feuillatte in the United States. In addition, it maintains a portfolio of leveraged and direct finance leases in rail and surface transport, aircraft, electric power, real estate, and manufacturing. The company sells its tobacco products primarily to wholesalers, including distributors; large retail organizations, such as chain stores; and the armed services. Altria Group, Inc. markets its wine products to restaurants, wholesale clubs, supermarkets, wine shops, and mass merchandisers. The company was founded in 1919 and is headquartered in Richmond, Virginia.

Profit Margin Comparison: Tobacco Companies

As a whole, and in my opinion, the Tobacco sector possesses some of the better average profit margins I've seen especially when to compared to some of the other industries I've written articles on. That said the average profit margin of the four companies featured is a pretty impressive 23.41%. Over the last 12 months, Altria Group has demonstrated a profit margin of 25.68% which places the company second among the other three companies I've featured. Of the other three companies Philip Morris led the group with a profit margin of 27.06%, Lorillard, Inc. came in a strong third demonstrating a profit margin of 24.08% and Reynolds American was last with a mediocre profit margin of 16.81%.

Operating Margin Comparison: Tobacco Companies

As was the case with profit margins, and in my opinion, the Tobacco sector also has some of the highest average operating margins I've seen since I began writing comparative articles a while back. That said the average operating margin of the four companies featured is a pretty admirable 40.78%. The good thing about those numbers is the fact Altria Group, Inc. has demonstrated a solid 42.23% operating margin over the last 12 months, but the bad thing is the fact that MO's operating margin only ranks third among the group. In terms of the other three companies the numbers are all very good. Lorillard, Inc. is the leader of the pack, considering the fact the company demonstrated an operating margin of 44.52%, and Philip Morris came in a close second by demonstrating an operating margin of 43.44%. It should be noted that Reynolds American placed last among the four companies featured simply because the company had only managed to demonstrate an operating margin of 32.92%.

Final Analysis

Of the four companies featured there are two strategies to consider when it comes to the Tobacco sector: growth and income. All four of these companies have demonstrated solid profit and operating margins over the last 12 months, which from a growth perspective is certainly something potential long-term investors should consider. From an income perspective all four companies have demonstrated very solid yields, and should be considered based on those numbers. As of the close on Friday the companies yields were as follows; Reynolds American Inc. 5.40% ($2.36), Altria Group 5.30% ($1.76), Lorillard, Inc. 5.20% ($6.20), and Philip Morris 3.70% ($3.40). In my opinion both angles should yield excellent returns over the next 3-5 years based not only on each of the companies yields but based on each company's combination of stock growth and stock income.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.