Altria (MO) Enters the E-Cigarette Business

Tobacco giant Altria (MO), the largest tobacco company in America, announced that it was planning to release an electronic cigarette later this year, to offset waning demand for its flagship cigarette products, such as Marlboro. Over the past few year, Richmond, Virginia-based Altria, once known as Philip Morris U.S.A., has been able to steadily grow revenue with smokeless products, such as chewing tobacco, and a small but growing beer and wine business.

Altria and Philip Morris International (PM) were two spun-off halves of the same company, the Philip Morris Companies. Altria retained Philip Morris' domestic operations while Philip Morris International exclusively operates in overseas markets. Daily Chart
Altria's e-cigarettes announcement follows its first quarter earnings, which rose 16% to $0.69 from the prior year quarter, topping analyst expectations. Meanwhile, revenue slid 2.1% to $5.53 billion, in line with the consensus estimate. Altria's cigarette sales volume slumped 5.2% while sales volume of Marlboro dropped 5.5%. Therefore, the company needs to expose itself to the small but rapidly growing e-cigarette market, where rival Lorillard's (LO) blu eCigs brand controls over 40% of the U.S. market. Just like Altria, Lorillard has struggled to retain its market in an environment of rising excises taxes, stricter regulations and more health conscious consumers. Lorillard reported first quarter declines in shipment volume of its Winston-Salem, Reynolds and Greensboro brands. Lorillard stated that the company estimates that electronic cigarettes replaced the consumption of 600 million cigarettes during the quarter. That would figure to an annual rate of 2.4 billion e-cigarettes sold annually, which translates to roughly 1% of the U.S. tobacco market. E-cigarettes use nicotine cartridges, which are then converted to vapor by an electric charge. The nicotine vapor is then inhaled, in a process lacking cancer-causing smoke and tar. The U.S. Food and Drug Administration is currently evaluating how to properly regulate e-cigarettes, since studies have been inconclusive. If the FDA's findings are favorable, then it can allow Altria to not only sidestep excise taxes but also marketing regulations, which currently require graphic health warning tablets on cigarette packages. Analysts believe that Altria could use its sizable cash position of $3.78 billion, up from $2.90 billion in the previous quarter, to acquire several smaller players to quickly catch up to and dominate Lorillard. Back in 2009, Altria acquired smokeless tobacco company UST, which added both snuff and wine to its portfolio. Although some investors are afraid that Congress will pass higher excise taxes against tobacco companies in 2013, some analysts believe that such tax hikes could actually benefit Altria, which has utilized prior tax increases to sneak in margin-boosting price increases. Shares of Altria currently trade at 14 times forward earnings with a 5-year PEG ratio of 2.01. Altria pays a 5% quarterly dividend, a hefty yield that is common in the tobacco industry. Other News About MO Altria to Sell E-Cigarette as Marlboro Demand Slides Will e-cigarettes help Altria grow? E-Cigarette Growth in 2013 A chart showing the rapid growth of the e-cigarette industry. Other Stocks in the News Chill Out With These Cola Stocks Is it time to buy Coca-Cola and Pepsi? Is it Time to Buy IBM? Should investors buy IBM after its recent plunge? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on May 3, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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