Standoff: Altria Group Vs. Philip Morris

| About: Altria Group, (MO)

Two companies with good long term growth potential are going to be examined in detail and pitted against each other in the hopes of finding a champion. At the end of the article we will offer our opinion as to which one we think is better. The two companies in question are Altria Group (NYSE:MO) and Philip Morris (NYSE:PM).

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 2nd quarter increased 26.5% to $2.5 billion when compared to the same period 1 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%. The firm increased the quarterly dividend from $0.41 to $0.44, an increase of 7.3%. This payment is applicable to shareholders of record Sept 14 and is payable on the 10th of Oct.

Reported and adjusted operating income for the financial services segment rose to $42 million, an increase of $15 million in the second quarter. 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 2nd quarter. Volume of wines shipped increased by 2.1%, mainly driven by an increase in exports.

Altria Group sports a great quarterly earnings growth rate of 175%, has increased dividends consecutively for 46 years and offers a pretty good yield of 5.10%.

Reasons to consider Altria Group:

A 3-5 year estimated EPS growth rate of 6.42

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

Zack's 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 5.10%

Projected year over year growth rates of 7.6% and 7.67% for 2012 and 2013 respectively

A great five year ROE average of 79.9%

A good interest coverage ratio of 4.5

$100K invested for 10 years would have grown to 136K for an annualized ROR of 4%

Charts and data of interest for Altria Group

Philip Morris reaffirmed its 2012 diluted earnings per share forecast will fall in the $5.10-$5.20 range, versus $4.85 in 2011. Adjusted diluted earnings per share were up 8.3% to $2.61, versus $2.41 in 2011 for the same period and the adjusted second-quarter earnings of $1.36 per share beat the Zack's consensus estimate of $1.34. It repurchased 17.8 million shares of common stock for a total of $1.5 billion in the 2nd quarter, and it announced a new three year repurchase program of $18 billion that will begin in August, 2012.

Additional reasons to consider Philip Morris:

A strong relative strength score of 86 out of a possible 100. Relative strength refers to a stock's price change over a period of time relative to that of a market index such as the S&P 500. Scores are assigned on a scale of 1 to 100, with 100 being the best score.

Profit margins of 27%

It has very strong levered free cash flow of $8.55 billion

A projected 3-5 year EPS growth rate of 9.33%, according to Zack's

Annual EPS before NRI increased from $2.80 in 2007 to $4.88 in 2011.

A good payout ratio of 61%

A very strong Interest coverage rate of 16

A decent yield of 3.4%

Net income increased from $6.3 billion in 2009 to $8.5 billion in 2011, an increase of over 36%

Cash flow per share has increased from $3.83 in 2009 to $5.55 in 2011, an increase of 44%

It reported diluted EPS of $4.85 in 2011 compared to $3.92 in 2010, an increase of 23.7%

It increased its quarterly dividend during the year by 20% - the annual rate now stands at $3.08

A very good ROE of 339%

It has a projected year over year growth rate of 6.3 % and 10.9% for 2012 and 2013 respectively

$100K invested for roughly 5 years would have grown to$193K for an annualized ROR of 16%

Charts and data of interest for Philip Morris


Both companies make for good long term plays, but if we had to choose between the two, we would lean towards Philip Morris for the following reasons

  1. Projected 3-5 year EPS growth rate of 9.33%, versus 6.4% for Altria Group
  2. A payout ratio of 61%, versus 80% for Altria Group
  3. A ROE of 339%, versus 93% for Altria Group
  4. An interest coverage ratio of 16.6 versus 4.5 Altria Group
  5. Profit margins of 27%, versus 25% for Altria Group
  6. A very strong positive levered free cash flow of $8.55 billion
  7. Sales versus 1 quarter ago of 142% Versus 62% for Altria group
  8. Perhaps the greatest reason to like Philip Morris more is that $100K invested for roughly 5 years in this company grew to $193K, while $100K invested in Altria group for 10 years produced a lower rate of return and only grew to roughly $136K.

Ultimately, if you can afford to have positions in both plays, it would not hurt to allocate some money to Altria group also.

EPS charts obtained from A major portion of the historical/research data used in this article was obtained from Earnings and growth estimates sourced from Dividend history sourced from


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.

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.

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