Shares of domestic tobacco giant Altria (MO: Charts, News), the parent company of Philip Morris tobacco products and Miller beer products in America, rose to an all-time high above $33 yesterday, outperforming a sideways market paralyzed by European woes. Altria has become a darling of defensive income investors, with its dividend yield of nearly 5% and a low beta of 0.43. Altria, with a market cap of 67 billion, was once a significantly larger company, before it spun off its international cigarette business as Philip Morris International (PM: Charts, News) and its food division as Kraft (KFT: Charts, News). Today, Altria’s operations are limited to the United States – a factor that hurt it when emerging markets were hot – but now help it as America outperforms other global markets. Over the past year, analysts have favored its subsidiary Philip Morris (PM: Charts, News) over Altria, due to Philip Morris’ vast global exposure to emerging markets. Today, analysts are backtracking, supporting Altria as a safer investment due to its lack of European and Asian exposure.
Over the past three years, Altria’s stock price has slowly but steadily outperformed its industry peers – Lorillard (LO: Charts, News), Philip Morris (PM: Charts, News) and Vector Group (VGR: Charts, News). In the previous quarter, Altria announced a contraction of its product margins to 20.6% – slimmer than Lorillard (24.5%), Philip Morris (24%) but outperforming all other competitors. The company’s flagship tobacco products – Marlboro, Parliament, Benson & Hedges and Virginia Slims, among others – remain strong despite increasing excise taxes and anti-tobacco legislation.
Altria’s trailing P/E of 20 – a 15 year high – is higher than most of its primary competitors, which has caused some investors to claim that shares were too rich. Despite this, shares have remained strong, climbing over 53% over the past five years, and over 530% since the turn of the century. Although Altria’s earnings per share have remained flat since the Philip Morris International spin off in 2008, investors have a habit of flocking to this stock when times are tough. Its hefty 5% dividend remains a popular way to gain some income while waiting out the storm. Analysts believe that Altria will issue buybacks and dividend increases in 2013, as there are few ways to boost its earnings per share significantly.
At the end of May, Altria’s CEO Michael E. Szymancyk retired, paving the way from Martin Barrington, who recently took over the top post. Barrington was upbeat regarding his new position. “I am very excited about Altria’s future,” Barrington stated. “The company has a unique combination of terrific and profitable brands, a strong and diverse balance sheet and truly talented people to drive growth into the future. I’m honored to have the opportunity to lead this company.” Barrington, who has been with the company since 1993, has also been given a seat on the Board of Directors.
To combat increasing legislation and litigation, Altria recently announced a new product – a non-dissolving chewable nicotine lozenge called Verve. The company is betting that this new product will allow it to sidestep harsher health-warning labels, and to give it a new avenue of growth outside traditional cigarettes. Verve will also complement Altria’s other smokeless tobacco products, such as Skoal and Copenhagen moist snuff, and will initially be offered in approximately 50 stores in Virginia this month. If Verve is successful, it will be introduced out nationally. Sales of domestic smokeless products is growing at approximately 7% annually, while domestic cigarette sales has been declining by 4% per year. Smokeless nicotine products have been traditionally avoided by mainstream users due to the “messiness” of spitting out the loose tobacco. Analysts believe that mint flavored lozenges may attract a new breed of customers.
Shares of Altria trade at 14 times forward earnings with a 5-year PEG ratio of 2.47, and pays a quarterly dividend of 43 cents per share.
Other News About MO
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Can Altria continue soaring higher?
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