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Big MO! I Love It, But I Have One Recommendation For Mgmt.

|Includes:Altria Group, Inc. (MO)

Big MO! I love it, but I have one recommendation for mgmt.

Widows, orphans and pensioners rejoiced after Altria's mgmt reported a good 2Q. Adjusted EPS came in at $0.59 (versus consensus of $0.57) enabling mgmt to raise its 2012 guidance from a midpoint of $2.20 ($2.17-$2.23) to $2.21 ($2.19-$2.23), in-line with consensus and up 7.8% when compared with 2011's results of $2.05. This suggests a dividend raise in August from $1.64 to $1.77 ($0.13/+7.9%), for a yield of ~5% at current prices.

I remain deeply committed to the stock and appreciate mgmt's ability to deftly maneuver through the regulation and litigation minefields affecting the industry. I am also thankful, in hindsight, for Altria's limited exposure to currency risk. It appears Europe, Japan and the BRIC's will continue to debase their currencies in an effort to play catch up with the U.S. and, wishfully, make their economies more competitive. This is likely to be a common theme for the foreseeable future as companies with un-hedged international exposure begin to gripe about their FX losses.

All of this leaves me with one objection, Altria's need to leverage its balance sheet against future unknown events. I am pained to say it, but I would send mgmt a bouquet if they were to announce an acquisition in-line with Altria's dual, sin city, mandate of alcohol and tobacco. Thanks to Mr. Bernanke, the Johannes Gutenberg of the U.S. Central Bank, it is unlikely that solid companies like Altria will ever again be in a position to borrow money at these levels and expand their businesses.

Disclosure: I am long MO.

Additional disclosure: I have a significant personal position in Altria and have owned the stock for several years. I have no intention of selling the stock for the foreseeable future or of adding to my position at these levels.

Stocks: MO