Altria Group, Inc. (MO) - Through its subsidiaries, engages in the manufacture and sale of cigarettes and other tobacco products in the United States and internationally.
Why I like Them
I like MO, as fundamentally they are very sound. They are in a growing industry and they control the market share being the largest producer making them a Best of Breed Company. MO is a very safe, conservative pick that will give you strong returns in exchange. I like them as they have a strong global brand, healthy balance sheet, and good future prospects. First lets look at the brand they hold. Right now they are the worlds largest manufacture of cigarettes. Yet bad for you, cigarettes will not be fading out of people’s lives anytime soon. It is a necessity and a crutch for most people and a way for MO to exploit their customers. Some people believe that the recent signing of the Family Smoking Prevention and Tobacco Control Act by President Obama will hurt this stock and the companies overall selling power. I disagree. The Act grants the U.S. Food and Drug Administration the authority to regulate tobacco products. Yes this will but a negative effect on the whole industry yet I see this being a more dominant effect on smaller competitors not Atria. Plus this was long anticipated so I only see it helping Altria long-term solidifying there position as the dominant global brand. Adding to this, operationally Altria is likely to benefit from several factors such as the integration of its recent acquisition of Smokeless Tobacco Company UST and benefits from recent restructuring actions. I think that in 2010 we will se sales volume increase along with revenues, which will be strengthened by higher pricing. This is all supported by brand investments, new acquisitions, and new product introductions. MO has been able to cut costs in recent times by consolidating all manufacturing facilities to Richmond, VA. Overall this will save them around $500 million. The industry itself has strong prospect for the future which bodes well for MO. Favorable pricing trends, along with free cash flow will allow for these companies to continue to grow. Even though consumption is expected to fall in 2009, I believe this will be offset by cost-saving efforts to eliminate wasted operating expensed.
Balance Sheet Looking Good
Highlights of the balance sheet would have to be the way MO utilizes its capital. They manage capital effectively as they reported a return on assets of 13% and a return on equity of 87%. Adding to this they have a 19% profit margin and 36% operating margin. I am always a big fan of companies with cash on hand and currently MO has around 600 million on hand. MO is strongly held by institutions and supported by strong analyst reports. With a P/S of 2.26 this shows a strong opportunity and helps support the claim that MO is a healthy, growing company. Adding to this MO offers a 7.5% dividend which is a very nice compliment to a solid company.
Overall, MO is a solid based company which will be a solid long-term investment. This is not a boom stock that you can bump or dump but it is a top stock pick if you are looking for long-term steady gains. Adding to this they offer a 7.5% dividend which sweetens the deal. Looking at all the valuations and fundamental factors I expect MO to be trading around $23.50 come 12 months from now. MO is trading at around $18.28 right now so that would be a total gain of around 30% then plus the dividend. If your interested in this stock buy before September 11th as that is the Ex-Dividend date.