Analyzing Altria Group's Results For Q3 2017 (Including 2018 Dividend And Adjusted Diluted EPS Projections)
Summary
- This article assesses MO’s performance for Q3 2017 and compares year-over-year results via three analyses.
- First, this article analyzes MO’s income statement for the three-months ended 9/30/2014, 9/30/2015, 9/30/2016, and 9/30/2017.
- Second, along with an overview of MO’s main product segments, this article provides a year-over-year quarterly shipment volume performance analysis.
- Third, this article provides a unique analysis of MO’s adjusted diluted EPS and target dividend distributions payout ratio (including 2018 projections).
- My summarized thoughts on MO’s performance for Q3 2017, current price target, and buy, sell, or hold recommendation are stated in the “Conclusions Drawn” section of the article.
Focus Of Article:
The focus of this article is to analyze Altria Group Inc.’s (NYSE:MO) results for the third quarter of 2017 and compare the company’s performance to prior periods. First, this article analyzes MO’s income statement (technically speaking the company’s “consolidated statement of earnings”) for the three-months ended 9/30/2014, 9/30/2015, 9/30/2016, and 9/30/2017. Second, along with an overview of MO’s main product segments, this article provides a three-months ended shipment volume performance analysis for 2014-2017 (“year-over-year” comparison).
Third, this article provides a unique analysis of MO’s historical/projected adjusted diluted earnings per share (“EPS”), dividend per share rates, and target dividend distributions payout ratio for 2017-2018. I will also provide a brief discussion on the fairly recent announcement by the Food and Drug Administration (“FDA”) and its impact on MO. This includes MO’s recent response in regards to this event.
This assessment article will show past and projected data with supporting documentation within three tables. I am writing this article due to the continued requests to provide this type of analysis on MO after the company reports quarterly earnings. This assessment article alone is not the only data/information that should be examined to initiate a position within MO. However, I believe this analysis would be a good “starting-point” to begin a discussion on the topic. My BUY, SELL, or HOLD recommendation and current price target for MO are stated in the “Conclusions Drawn” section at the end of the article.
1) Assessing MO’s Quarterly Consolidated Statement Of Earnings:
To begin this analysis, Table 1 is provided below. Table 1 shows MO’s consolidated statement of earnings for the three-months ended 9/30/2014, 9/30/2015, 9/30/2016, and 9/30/2017. Due to the fact MO’s performance is “skewed” due to seasonal trends, I believe comparing the company’s performance on a year-over-year quarterly basis is the most appropriate type of quantitative analysis for this assessment article. In other words, this type of analysis compares the quarter of one year to the same quarter of a prior year.
Table 1 – MO Consolidated Statement Of Earnings (Three-Months Ended 9/30/2014, 9/30/2015, 9/30/2016, And 9/30/2017)
(Source: Table created entirely by myself, partially using MO data obtained from the SEC’s EDGAR Database)
Using Table 1 above as a reference, MO reported “gross profit” (net revenues less cost of sales and excise tax) of $2.7, $3.0, $3.2, and $3.2 billion for the third quarter of 2014, 2015, 2016, and 2017, respectively (see red reference “A”). When calculated, MO increased the company’s quarterly gross profit by $0.4 (rounded), $0.1, and less than $0.1 billion during the third quarter of 2015, 2016, and 2017, respectively. I believe readers would agree this has been a fairly consistent, gradual increase in quarterly gross profit.
The following three main factors, within either most or all of MO’s product segments, helped contribute to this fairly consistent, gradual gross profit increase: 1) several minor price increases over the past several years, 2) minor-modest shipment volume fluctuations within all product segments over the past several years (will be analyzed later in the article), and 3) minor fluctuations in overall market share.
Consistent with MO’s gross profit, the company’s “operating income” (gross profit less general operating, administrative, and asset impairment/exits costs) has also gradually net increased during the past several years. MO reported operating income of $2.0, $2.3, $2.4, and $2.6 billion for the third quarter of 2014, 2015, 2016, and 2017, respectively (see red reference “B”).
Moving down Table 1, after accounting for MO’s interest expense, loss on the extinguishment of debt (during the third quarter of 2016), earnings from its former/current 27%/10% equity ownership stake in SAB Miller (OTCPK:SBMRY)/Anheuser-Busch Inbev (BUD), other income, and provision for income taxes, the company reported “net earnings” of $1.4, $1.5, $1.1, and $1.9 billion for the third quarter of 2014, 2015, 2016, and 2017, respectively (see red reference “D”).
As such, excluding 2016, MO reported a gradual increase in net earnings during the past several years. However, it should be noted when excluding the “one-time” loss on the extinguishment of debt of ($823) million (includes accounting for taxable income adjustments when excluding this loss), MO would have reported net earnings of approximately $1.8 billion for the third quarter of 2016.
When backing out all non-controlling interests, MO reported earnings of $0.707, $0.779, $0.560, and $0.974 per share for the third quarter of 2014, 2015, 2016, and 2017, respectively (see red reference (“E / F”)). When excluding the one-time loss on extinguishment of debt discussed above, MO would have reported earnings of approximately $0.92 per share for the third quarter of 2016.
When assessing MO’s consolidated statement of earnings for the third quarter of 2017, I believe the company delivered a consistent operating performance by continuing to increase its gross profit, operating income, and EPS. When compared to my projected MO EPS of $0.968 for the third quarter of 2017, the company basically matched my expectations (outperformance of $0.006 per share).
My projected MO adjusted diluted EPS will be discussed later in the article. Let us move on to the next part of this assessment article.
2) Assessing MO’s Quarterly Shipment Volume Performance:
Prior to performing MO’s quarterly shipment volume analysis, let us first get accustomed to the company’s four main product segments. This includes products that are currently “on the shelves” and are generating meaningful revenue. MO, through the company’s subsidiaries and affiliates, manufactures and sells cigarettes, other tobacco related products, and other nicotine-containing products in markets within the United States (“U.S.”).
The following are MO’s four main product segments: 1) cigarettes (manufactured and sold by Phillip Morris USA Inc.), 2) cigars (manufactured and sold by John Middleton Co. and recently acquired Sherman Group Holdings, LLC and subsidiaries [Nat Sherman]), 3) smokeless tobacco (most manufactured and sold by U.S. Smokeless Tobacco Company LLC), and 4) wine (produced and/or distributed by Ste. Michelle Wine Estates Ltd.). In addition, through the recent business combination with SBMRY and subsequent purchase of shares late last year, MO has a 10% equity ownership stake in BUD. Let us get briefly get accustomed to MO’s four main product segments.
MO’s cigarettes product segment is lead by the iconic brand “Marlboro®” (Marlboro). Simply put, Marlboro accounts for a large proportion of sales/revenue. This includes all products/styles under the Marlboro name (red, gold, black, etc…). This product segment also includes other premium brands such as “Benson & Hedges®”, “Parliament®”, and “Virginia Slims®” along with discount brands such as “Basic®” and “L&M®”.
MO’s cigars product segment is lead by the brand “Black & Mild®” (Black & Mild). This product segment also includes an “other” sub-classification. However, MO’s other cigars product segment accounts for only a fractional share of sales/revenue when compared to Black & Mild. As stated above, MO also recently acquired Nat Sherman, which will allow the company to expand its “footprint” within this product segment.
MO’s smokeless tobacco product segment includes brands such as “Copenhagen®” (Copenhagen) and “Skoal®” (Skoal). These two brands account for a majority of sales/revenue within this product segment. This product segment also includes an “other” sub-classification.
MO’s wine product segment includes brands such as “Chateau Ste. Michelle®”, “Columbia Crest®”, “14 Hands®”, and “Stag’s Leap Wine Cellars™”. This product segment also includes an “other” sub-classification, which includes various other brands who individually account for only a fractional share of sales/revenue when compared to the other four brands listed above.
In addition, MO currently has two additional product lines either in the process of being approved by regulators or fully developed that may one day notably contribute to the company’s bottom line. First, through Nu Mark LLC (Nu Mark), this includes the e-vapor product “MarkTen ®” (MarkTen), which recently had 65% market volume in retail stores/e-stores.
MarkTen recently had a 13.5% national retail market share amongst mainstream channels, which makes it the second most popular brand in e-vapor. In addition, Nu Mark has recently announced to distribute MarkTen Bold to approximately 15.000 additional retail stores in the fourth quarter of 2017.
Second, MO has a collaboration/partnership with Phillip Morris International Inc. (PM) regarding a heated tobacco reduced-risk product (“RRP”), “IQOS®” (“IQOS”). Recent progress, albeit slow, shows signs of promise as MO/PM await the government’s response to recently submitted applications (submitted in March 2017 and began to be reviewed in May 2017). In the meantime, MO continues to derive the company’s IQOS U.S. commercialization plan.
Now that we have a better understanding of MO’s product segments, let us now perform a year-over-year shipment volume analysis. To start this analysis, Table 2 is provided below.
Table 2 – MO Shipment Volume Performance Analysis (By Product Segment; Three-Months Ended 9/30/2014, 9/30/2015, 9/30/2016, And 9/30/2017)
(Source: Table created entirely by myself, partially using MO data obtained from the SEC’s EDGAR Database [link provided below Table 1])
Using Table 2 above as a reference, during the third quarter of 2015, MO had a minor (less than 5%) increase of 0.18% and 3.66% in the total shipment volume of the company’s cigarettes and wine product segments when compared to the third quarter of 2014, respectively. MO had a modest (at or greater than 5% but less than 10%) increase of 5.09% in the total shipment volume of the company’s cigars product segment.
However, MO had a minor decrease of (1.96%) in the total shipment volume of the company’s smokeless tobacco product segment. Simply put, I believe most readers would agree MO’s shipment volume experienced minor-modest growth in three out of the four main product segments during the third quarter of 2015 when compared to the third quarter of 2014.
During the third quarter of 2016, MO had a minor increase of 4.43% and 0.56% in the total shipment volume of the company’s cigarettes and cigars product segments when compared to the third quarter of 2015, respectively. MO had a modest increase of 6.31% in the total shipment volume of the company’s wine product segment. However, MO had a minor decrease of (0.69%) in the total shipment volume of the company’s smokeless tobacco product segment.
During the third quarter of 2017, MO had a modest increase of 6.65% in the total shipment volume of the company’s cigars product segment when compared to the third quarter of 2016. This was mainly due to MO’s recent acquisition of Nat Sherman. However, MO had a minor decrease of (1.76%) and (0.58%) in the total shipment volume of the company’s smokeless tobacco and wine product segments, respectively. For MO’s wine produce segment, this actually was a nice “bounce back” when compared to the prior quarter when there was a material (at or greater than 10%) decrease in the year-over-year quarterly shipment volume.
Digging deeper in MO’s smokeless tobacco product segment, Copenhagen continued to deliver solid results during the third quarter of 2017, which was partially mitigated by the continued decline in market share when it came to Skoal.
In addition, MO had a modest decrease of (6.20%) in the total shipment volume of the company’s cigarettes product segment. With that being said, it should be noted the entire cigarette market has continued to experience minor declines in consumption over a prolonged period of time. While there was an exception to this general theme during 2015, parts of 2016 and 2017 have reverted back to this “long-term trend”. However, with that being said, this quarter’s modest decrease was of greater severity when compared to the past several quarters.
This was mainly due to the California state excise tax (“SET”) increase of $2 per pack, which took effect earlier in the year. Simply put, MO’s premium Marlboro brand experienced a minor retail market share decline as consumers chose cheaper, alternative cigarettes/products.
Management has stated MO was expecting this “initial” type of consumer reaction/setback and expects customers to come back to Marlboro over time as the SET “price shock” subsides. To a lesser extent, management also mentioned there were several recent new product launches and product promotions by competitors, which impacted volumes/market share. As such, I believe this product segment’s performance should be seen as a “cautionary”/negative trend and needs to be monitored in future quarters. Now let us move on the final part of this assessment article.
3) Assessing MO’s Adjusted Diluted EPS, Dividend Per Share Rates, And Target Dividend Distributions Payout Ratio:
MO’s executive management team has continued to state the company’s Board of Directors (“BoD”) bases its dividend per share rate directly off of adjusted diluted EPS. This figure is slightly different when compared to the EPS figure analyzed within the first part of this article. MO’s adjusted diluted EPS backs out certain “extraordinary/one-time” items in relation to the company’s operations.
Such items include (but are not limited to) tobacco/health litigation costs, SBMRY/BUD special transactions, gains (losses) associated with the extinguishment of debt, and gains (losses) associated with derivative instruments. MO’s executive management team has continued to reiterate the BoD’s “annual target distribution” is 80% of the company’s adjusted diluted EPS for that given year.
To analyze MO’s historical/projected adjusted diluted EPS, dividend per share rates, and target dividend distributions payout ratio, Table 3 is provided below.
Table 3 – MO Adjusted Diluted EPS, Dividend Per Share Rates, And Target Dividend Distributions Payout Ratio (2017-2018)
(Source: Table created entirely by myself, partially using MO data obtained from the SEC’s EDGAR Database [link provided below Table 1])
Using Table 3 above as a reference, MO reported adjusted diluted EPS of $0.73, $0.85, and $0.90 for the first, second, and third quarters of 2017, respectively. Readers familiar with my prior MO articles would know I projected the company would report adjusted diluted EPS of $0.88 for the third quarter of 2017. Simply put, I anticipated MO would have several “one time” expenses reversed out of adjusted diluted EPS.
This included ($0.015) per share in relation to certain tobacco/health litigation items and asset impairment, exit, and implementation costs (my projected adjusted EPS of $0.968 per share versus MO’s reported adjusted EPS $0.974 per share; see discussion earlier). Simply put, such expenses ultimately never materialized. As such, I believe MO’s adjusted diluted EPS for the third quarter of 2017 was a minor outperformance when compared to my expectations.
I am projecting MO will report adjusted diluted EPS of $0.81 for the fourth quarter of 2017. When combined, this calculates to an adjusted diluted EPS of $3.29 for 2017 (see blue reference “A” within the 2017 column; left side). If this projection comes to fruition, when compared to MO’s adjusted diluted EPS of $3.03 for 2016, the company would increase its annual adjusted diluted EPS by $0.26 or 8.58% during 2017. I believe this would be an encouraging sign as MO’s annual adjusted diluted EPS percentage would continue to increase by high single digits.
When calculated, MO’s projected target distribution to shareholders for 2017 would be $2.63 per share (see blue reference “C” within the 2017 column; left side). This calculates to a quarterly target distribution of $0.658 per share for 2017 (see blue reference “(C / 4)” within the 2017 column; left side). In comparison, MO distributed dividends of $0.61, $0.61, and $0.66 per share for the first, second, and third quarters of 2017, respectively. I am projecting MO will distribute a dividend of $0.66 per share for the fourth quarter of 2017.
When combined, this would be an annual dividend distribution of $2.54 per share. If this projection comes to fruition, MO would have an annual underpayment of $0.09 per share. This would be a $0.02 per share additional underpayment when compared to 2016. When calculated, MO would have an annual target dividend distributions payout ratio of 97%, which would be a minor underpayment. Now let us take a look at my projected MO adjusted diluted EPS and dividend per share rates for 2018.
Still using Table 3 above as a reference, based on management’s current guidance, along with other qualitative and quantitative factors, I am projecting MO will report adjusted diluted EPS of $0.81, $0.91, $0.96, and $0.87 for the first, second, third, and fourth quarters of 2018, respectively. When combined, this calculates to a projected adjusted diluted EPS of $3.55 for 2018 (see blue reference “A” within the 2018 column; right side). If this projection comes to fruition, when compared to MO’s projected adjusted diluted EPS of $3.29 for 2017, the company would increase its annual adjusted diluted EPS by $0.26 or 7.90% during 2018.
When calculated, MO’s projected target distribution to shareholders for 2018 would be $2.84 per share (see blue reference “C” within the 2018 column; right side). This calculates to a quarterly target distribution of $0.71 per share for 2018 (see blue reference “(C / 4)” within the 2018 column; right side).
Based on the data above, including additional qualitative and quantitative factors omitted from this particular article, I am projecting MO will declare a dividend of $0.66, $0.66, $0.715, and $0.715 per share for the first, second, third, and fourth quarters of 2018, respectively. When calculated, this would be an annual dividend distribution of $2.75 per share. As such, when compared to MO’s projected target distribution of $2.84 per share for 2018, the company would have an annual underpayment of $0.09 per share.
This would be an unchanged per share underpayment when compared to 2017. When calculated, MO would once again have an annual target dividend distributions payout ratio of 97%, which would continue to be a minor underpayment.
Brief Discussion Of FDA’s July 2017 Announcement And MO’s Response:
Even though this article specifically addresses MO’s performance during the third quarter of 2017, I want to briefly describe/highlight the FDA’s press conference on 7/28/2017 and provide a quoted response by the company. Simply put, the FDA ultimately wants all U.S. tobacco companies to reduce nicotine in its cigarettes to “non-addictive” levels. The FDA also is reviewing certain “flavors” in tobacco products, including menthol.
I don’t believe the market’s reaction was any surprise this past summer (uptick in volume and initial notable selling). Most market participants initially assessed this would greatly hinder future profits of all U.S. tobacco companies. With that being said, I believe a few points should be highlighted.
First, the FDA actually “changed its tone” in regards to tobacco in general. In the past, U.S. government agencies were generally advocating for a “tobacco free” world for future generations. According to this statement, the FDA actually is now encouraging smokers to switch to RRPs such as smokeless tobacco, e-cigarettes, and/or potentially heat not burn products (discussed next). I believe this is a notable shift in overall policy. Since MO currently offers smokeless tobacco and e-cigarettes, a possible broader “shift” from one product line to another would not be overly negative.
Second, as stated earlier in the article, MO currently has a collaboration/partnership with Phillip Morris International Inc. (PM) regarding a heated tobacco/RRP, IQOS. I believe MO/PM is ultimately “banking” on this product being an eventual replacement to regular cigarettes. Now, with that being said, MO/PM is only in the early stages of embarking on this plan/goal but I believe this should be highlighted in light of the FDA’s statement last Friday.
However, it should be noted PM currently has an advantage within the heat not burn market as they have been the first company to submit paperwork to the FDA in regards to IQOS. If approved, MO will also have an advantage as being the first U.S. company to market IQOS (MO will have a licensing agreement with PM).
Third, the FDA’s announcement is just the first stage in a potential change in policy/regulation. This will, at the very least, take multiple years to implement (if ever). In the meantime, well capitalized U.S. tobacco companies will continue to develop/improve on innovative products/technologies. I believe this actually benefits larger tobacco companies like MO (economies of scale; high barriers to entry). Still, this event will undoubtedly impact future operations/valuations within the sector. As such, continuous monitoring of future developments/updates would be wise.
The following was MO’s response to an analyst’s question, via the company’s earnings conference call on 10/26/2017, in relation to the FDA’s recent press release/commentary:
“… There's quite a lot to do, obviously, as you know - of any nicotine standard or any other standard, for that matter. Were it to be implemented, there has to be science and evidence-based, and in the nicotine area there's a lot of science that would have to be answered. So let me just call out a few for instance...There is no standard that is currently developed with respect to what the level should be or where it should be measured. Is it in the aerosol or is it in the filler? How would it be implemented? Would it phased in over time or would it be done on a more immediate basis? Those are questions which have to be answered that are not answered yet and the government has research going on that regard. As you might expect, our scientists are fully engaged in all the scientific questions, both tracking government research as well as doing our own research so that we're fully informed on those. There are big questions around technical achievability, which is an area that you're asking about. Now, the possibility of a standard around nicotine has been in the statute since 2009, so it won't surprise anyone to know that we have been looking at ways that we might meet any potential standard. You can look at product design, you can look at tobacco leaf treatments, you can look at tobacco seed technologies - most of which are proprietary, so I won't comment beyond them but I think people should be assured that we have been looking at this. And then finally, I think another area that's going to have to be wrestled with is what about unintended consequences if a standard comes in. We're going to have to make sure that the market still works. So as you can tell, just from that high-level description, there's quite a lot that has to be wrestled to ground…”
Conclusions Drawn:
This article analyzed MO’s results for the third quarter of 2017 and compared the company’s performance to prior periods. First, this article analyzed MO’s consolidated statement of earnings. This analysis showed the following were MO’s EPS for the three months ended 9/30/2014, 9/30/2015, 9/30/2016, and 9/30/2017, respectively (year-over-year quarterly basis):
MO’s EPS for Q3 2014, Q3 2015, Q3 2016, and Q3 2017 (when excluding certain one-time extraordinary items related to the extinguishment of debt [includes accounting for taxable income adjustments when excluding this loss] ): $0.71, $0.78, $0.92, and $0.97 per share.
When assessing MO’s consolidated statement of earnings for the third quarter of 2017, I believe the company delivered a consistent operating performance by continuing to increase its gross profit, operating income, and EPS. When compared to my projected MO EPS of $0.968 for the third quarter of 2017, the company basically matched my expectations (outperformance of $0.006 per share).
Second, along with an overview of MO’s main product segments, this article provided a shipment volume performance analysis for the third quarter of 2014-2017 (year-over-year comparison). Through this analysis, I believe MO’s shipment volume performance for the third quarter of 2017 (when compared to 2016) was positive in regards to the cigars product segment, basically neutral in regards to the smokeless tobacco and wine product segments, and cautionary/negative in regards to the cigarettes product segment.
This past quarter’s modest decrease in the shipment volume of MO’s cigarettes product segment was of greater severity when compared to the prior several quarters. This was mainly due to the California state excise tax (“SET”) increase of $2 per pack, which took effect earlier in the year. Simply put, MO’s premium Marlboro brand experienced a minor retail market share decline as consumers chose cheaper, alternative cigarettes/products. As such, I believe this product segment’s performance needs to be monitored in future quarters.
Finally, this article provided a unique analysis of MO’s historical/projected adjusted diluted EPS, dividend per share rates, and target dividend distributions payout ratio for 2017 and 2018. The following was MO’s reported adjusted diluted EPS for the first, second, and third quarter of 2017, respectively:
MO’s reported adjusted diluted earnings for Q1 2017, Q2 2017, and Q3 2017: $0.73, $0.85, and $0.90* per share
* = a $0.015 per share outperformance when compared to my adjusted diluted earnings projection
The following is my projected MO adjusted diluted EPS for the fourth quarter of 2017 and full-year 2018, respectively:
MO’s projected adjusted diluted earnings for Q4 2017: $0.81 per share
MO’s projected adjusted diluted earnings for 2018: $3.55 per share**
** = This projection excludes any impact from recently proposed taxation legislation that could be enacted by Congress in the future
The following is my projected MO dividend per share rate for the fourth quarter of 2017 and first-fourth quarters of 2018, respectively:
MO’s projected dividend for Q4 2017: $0.66 per share
MO’s projected dividend for Q1 2018, Q2 2018, Q3 2018, and Q4 2018: $0.66, $0.66, $0.715, and $0.715 per share
When calculated, I am projecting MO will increase the company’s quarterly dividend by $0.055 per share beginning in the third quarter of 2018. Based on the projections from the figures provided above, MO would have an annual target dividend distributions payout ratio of 97% for 2018, which would continue to be a minor annual underpayment.
My BUY, SELL, Or HOLD Recommendation:
MO, through a continued dominate retail market share in the cigarettes and smokeless tobacco product segments (both continue to have over 50% retail market share), I believe, will continue to provide attractive year-over-year quarterly results. With that being said, the recent shipment volume and retail market share declines within MO’s cigarettes product segment needs to be carefully monitored in future periods.
MO also currently has a 10% equity ownership stake in BUD, the largest brewer in the world, which recently reported a fairly good quarter. As such, MO’s investors have some exposure to the brewing industry, which adds even more “insulation” during a defensive market. In addition, there is a high probability MO will continue to repurchase outstanding shares of common stock throughout most (if not all) quarters over the foreseeable future, which has cumulative net benefits to shareholders.
From the analysis provided above, including additional factors/catalysts not “fully” discussed within this particular article (for instance all the possible outcomes from the recent FDA announcement), I currently rate MO as a SELL when the company’s stock price is trading at or greater than $74.00 per share, a HOLD when trading between $64.01 - $73.99 per share, and a BUY when trading at or less than $64.00 per share.
These ranges are unchanged when compared to my last MO article (approximately three months ago). This is mainly due to MO’s “in-line” performance, when compared to my projections, for the third quarter of 2017 when it comes to EPS. This also considers projected results over the foreseeable future.
As such, I currently rate MO as a HOLD (however, close to my BUY range). My current price target for MO is $74.00 per share. This is currently the price where my HOLD recommendation would change to a SELL. The current price where my recommendation would change to a BUY is $64.00 per share.
Final Note: Each investor's BUY, SELL, or HOLD decision is based on one's risk tolerance, time horizon, and dividend income goals. My personal recommendation will not fit each reader’s current investing strategy. The factual information provided within this article is intended to help assist readers when it comes to investing strategies/decisions. Due to client engagements/services through my employer in relation to British American Tobacco p.l.c.’s (BTI) acquisition of Reynolds American, Inc (RAI), I will not discuss or take questions in relation to either company.
I first initiated a position in MO back in late 2009 and continued to increase my position, at periodic intervals, from 2010-2013. On 10/4/2016, for the first time in several years, I “directly” increased my position in MO at a weighted average purchase price of $61.85 per share. On 3/1/2017, I sold approximately 33% of my entire MO position at a weighted average price of $75.605 per share as my price target, at the time, of $75.00 per share was met.
On 3/2/2017, I sold another approximate 33% of my existing MO position at a weighted average price of $75.85 per share. On 3/8/2017, I sold my remaining position in MO at a weighted average price of $76.025 per share. The weighted average purchase price of my entire MO position was $29.78 per share. This weighted average per share price excluded all dividends received/reinvested. The total return of my MO investment, excluding all dividends received/capital gains on reinvested dividends, was 234.3%.
On 8/21/2017, I once again initiated a position in MO at a weighted average purchase price of $63.465 per share as my BUY price of $64.00 per share was reached. This weighted average per share price excludes all dividends received/reinvested.
Each MO trade performed over the past several years was disclosed to readers in “real time” (that day) via the StockTalks feature of Seeking Alpha (which cannot be changed/altered). Through this resource, readers can look up all my prior disclosures (buys/sells) regarding all companies I cover here at Seeking Alpha (see my profile page for a list of all stocks covered).
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
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I cannot cover ABR or STWD in the mREIT sector due to indirect conflicts of interest.
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7) I provide, for each BDC I cover, risk ratings on over 1500+ underlying portfolio companies. In addition, I provide monthly credit upgrades / downgrades on specific underlying portfolio companies. By having access to this valuable information, subscribers are provided “an edge” when it comes to assessing future BDC performance (which directly impacts stock price valuations).
8) I provide “real-time” chat messages regarding all purchase and sale decisions I make within my personal portfolio for the two sectors I cover. In the past, I have provided such disclosures, for free, via the StockTalks feature of S.A. (for transparency and credibility). However, since this provides additional value for subscribers, I “transitioned” these real-time disclosures to subscribers of the REIT Forum. I will continue to disclose publicly all stock purchase and sale decisions. However, they will only be within each applicable sector article which won’t be in real-time (could be a few days later or could be a few weeks until readers see what moves I made outside the REIT Forum).
I hope this provides some additional clarity on what I specifically provide to Colorado’s the REIT Forum Marketplace service.
I am a Certified Public Accountant (CPA) and Certified in Financial Forensics (CFF). I have also been a member of the American Institute of Certified Public Accountants (AICPA) for 24 years. My current title is partner at a national accounting firm. I have audit, tax, and consulting experience with entities in the following sectors: closed-end funds, energy, financials, healthcare, homebuilders, pharmaceuticals, private equity, REITs, and telecoms. I also have experience with C-corps., estates, high net worth individuals, LLCs, LLPs, S-corps., and trusts. I am an active investor. My investing fundamentals are based on both qualitative and quantitative information. By using my financial / analytical skills, I create specific investing ideas / strategies based on valuations and total returns. The two main sectors I currently provide articles on are mortgage real estate investment trusts (mREITs) and business development companies (BDCs).
Disclaimer: I cannot own and will not give an opinion on any investments my current employer has any direct or indirect professional services with (accounting, audit, tax, consulting, etc.). As such, most large-cap stocks are "off the table" regarding my articles. All accounting insight, analysis, and opinions stated within any articles I write (in regards to a specified stock) are entirely from my own personal research and analysis. I believe my articles are both informative and in some cases educational.I appreciate my loyal readers and I’ll continue to try to provide high quality, in-depth articles.
Commonly Asked Questions:
Question 1): If you are only paid per article, why make your articles so long / detailed?- I like to provide the “nuts and bolts” of a company. As such, I strive for my articles to have some sort of “hard to obtain” facts / figures. From this data, I like to fully discuss / analyze specific topics within a particular stock. This mainly consists of a quarterly projection article and a series of articles on a company’s dividend sustainability. In certain instances, I also write articles in regards to specific, material events that occur during a quarter.
- I believe a company’s quarterly results and upcoming dividend declarations are two of the most important topics readers are requesting information on. My analysis takes the “average” article several steps further to allow readers to have access to information that is rare to public viewership.
Question 2): How come you only write 1-2 articles a week (would like to see more)?
- As stated in my profile above, I have a full-time professional career. I write / analyze stocks in my free time. To provide these types of high quality / in-depth articles, I can’t see writing more than 2 articles a week. I believe “quality” should always be a higher priority versus “quantity”.
- As many readers should know by now (if you’ve followed me for a while), I'm not here for the monetary rewards. If that was the case, I’d write 5+ weekly articles and provide little to no engagement in each article’s comment section. I believe the comments section is as important as the article themselves b/c readers have a wide range of questions in relation to each article or the sector in general.
Question 3): What do you personally gain from writing these articles?
- I am not here trying to promote a company, book, or website. There’s nothing wrong with that. That’s just not what I’m about. I’m here for the “average Joe”.
- When I decided to write these articles, I based it on the notion I am filling a “special niche” per se. Using skills that have been built up over my professional career, my articles usually provide unique information that most writers either a) don’t have the technical expertise to provide or b) don’t bother providing due to the time it takes to compile such data. As such, I believe the S.A. community benefits from my articles. I solely do this b/c it’s a passion of mine and I like helping readers have accurate, reliable data that is not readily available. Yes, I understand this may seem “hard to believe” in this day and age.
Question 4): How come you do not write about more stocks?
- To give readers the level of detail that I provide in my articles, I amass large amounts of data every quarter (or even weekly). As a direct result, a large amount of time is consumed by obtaining / analyzing this data.
- If I expanded the stocks I research, it would most likely take away the quality of other articles I currently am writing about. Again, this gets back to the “quality vs. quantity” metric.
- There is a fairly large range of stocks / investment vehicles I cannot write about / provide an opinion on due to various conflicts of interests (regarding my professional career). This is a topic I take VERY seriously.
Analyst’s Disclosure: I am/we are long MO. 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.
I currently have no position in BTI, BUD, PM, or RAI.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (60)
Your articles are so clear cut and concise. Thank you for presenting this for all of us!
