Altria Group, Inc. (MO) generates significant cash flow and the stock has a high dividend yield. However, the company is engaged in numerous tobacco liability suits. Several large punitive damage awards have been upheld by appellate courts, especially the $50 million judgment paid out in the Boeken case after the U.S. Supreme Court refused to hear it. The Hold rating is maintained.
Longer-term, the spin-offs of Kraft (KFT) and Philip Morris International (PM) should unlock shareholder value. The U.S. tobacco industry is one of the largest and most profitable markets in the world. With a stable of strong brands, an efficient distribution network, and a strong field sales force, Altria Group has the ability to leverage the company's resources across an array of tobacco products.
Altria's stock has traded in a P/E multiple range of 6 to 18 over the last 10 years. The stock has maintained a low P/E due to tobacco-related litigation issues, and has been pressured down to a single-digit P/E during times of court case losses. We expect Altria's stock to trade in a P/E multiple range of 12 to 16. The target price of $23 is 14 times 12 month trailing earnings.
Read the full analyst report on MO
Read the full analyst report on PM
Get real-time market insights and profitable stock recommendations from the team of analysts at Zacks Equity Research. See all todays Analyst Blog entries on Zacks.com.