Altria (MO) - Smokers will smoke

November 25, 2008

Ticker: MO

Altria Group is the holding company of Philip Morris USA and John Middleton which are engaged in the manufacture and sale of cigarettes and other tobacco products.

Philip Morris Capital Corporation - another wholly owned subsidiary, maintains a portfolio of leveraged and direct finance leases.

Tobacco Products

PM USA manufactures; markets and sells cigarettes and other tobacco products in the United States and its territories. PM USA's total cigarette shipments in the United States were 175.1 billion units in 2007. PM USA's major brands include Marlboro, Virginia Slims and Parliament.

Financial Services

PMCC holds investments in finance leases, principally in transportation (including aircraft), power generation and manufacturing equipment and facilities. PMCC's finance asset portfolio includes leases in the investment categories, such as electric power, aircraft, rail and surface transport, manufacturing and real estate industries.

Why Altria

Some time back I read an analysis on Wrigley (WWY) – on why it was a good stock for the long term. The analyst had some excellent points to make – but the one that I still remember is something to the effect that – when economy goes bad and jobs are lost – people are obviously stressed and tend to chew more gum to reduce stress levels.

Now I don't know how true that - "Hi Honey! I just got fired – I'll just pick some gum on the way and see you in five…" Not a call that I would make if I were to get the pink slip.

That said, I could see smokers going that route though – smokers will always smoke and perhaps an extra one or two to bust higher stress levels.

Also, I read this on Wikinvest.com that Altria's cost to produce 1000 cigarettes is $16.40 – about 20% lower than the competition.

That's a start - let's see if Altria's got the numbers to make it to our watchlist –

Earnings

		Actual (USD)	Estimates (USD)	Surprise
Q3 2008		0.46	0.44	$0.02(4.07%)
Q2 2008		0.46	0.45	$0.01(1.55%)
Q1 2008		0.37	0.36	$0.0.1(1.37%)

The earnings estimates for Q4 2008 are at $0.38 – and my money says Altria is going to meet (or beat) that number. Altria's revenues have been holding their own during 2008 with Q3 revenues at $4.3B higher than Q2 at $4.2B and Q1 at $3.6B. The analyst estimates for Q4 2008 are at $3.9B.

View the full MO chart at Wikinvest

The P/E ratio is at about 10 (F P/E @ 16) – the stock is fairly priced at the current trading rate. What's gonna make dividend investors lick their fingers is the current yield at nearly 9% - greater than 89% of other companies in the Tobacco industry

The company reported healthy margins comparable with other companies in the industry - Gross Margin 39% Operating Margin 23% EBITDA Margin 28% and Profit Margin at over 16%.

The Return on Equity for MO at 30% - are better than 72% of its competitors in the Tobacco industry – an indicator that it is able to reinvest its earnings efficiently.

What weighs against it

The numbers all look good – but here's a couple that need to be considered – Altria has recently seeked debt financing of over $6B. Also, traditionally democratic administrations have been less sympathetic to tobacco companies – Rising excise taxes and reduced profits?