Altria Group Inc (MO) Valuation

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Company Profile (obtained from Google Finance): Altria Group, Inc. (ALG) is a holding company. As of December 31, 2008, ALG’s wholly owned subsidiaries included Philip Morris USA Inc. (PM USA) and John Middleton Co. (Middleton). Philip Morris Capital Corporation (PMCC), another wholly owned subsidiary, maintains a portfolio of leveraged and direct finance leases. In addition, the Company held a 28.5% interest in SABMiller plc (SABMiller), as of December 31, 2008. On January 6, 2009, the Company acquired UST Inc. (UST), which owns operating companies engaged in the manufacture and sale of smokeless tobacco products and wine. On March 28, 2008, it completed the spin-off of Philip Morris International Inc. (PMI) to Altria Group, Inc.

ModernGraham Comments: The valuation comes out to be $0 because the earnings per share have been going down over the last few years, leading to a negative growth estimate.

Defensive and Enterprising Investor Tests:

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
6. Moderate PEmg ratio – PEmg is less than 20 – PASS
7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests: Score = 2/5

1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
3. Earnings Stability – positive earnings per share for at least 5 years – PASS
4. Dividend Record – currently pays a dividend – PASS
5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary:

• Last Updated    11/2/2009
• MG Value    $0
• MG Opinion    Overvalued
• Value Based on 3% Growth    $24
• Value Based on 0% Growth    $14
• Market Implied Growth Rate    1.19%
• Net Current Asset Value (NCAV)    -$13.11
• PEmg    10.89
• Current Ratio    0.70
• PB Ratio    10.17

Key Data:

Balance Sheet – 9/30/2009

• Current Assets    $5,008,000,000
• Current Liabilities    $7,170,000,000
• Total Debt    $11,184,000,000
• Total Assets    $35,880,000,000
• Intangible Assets    $0
• Goodwill    $17,140,000,000
• Total Liabilities    $32,157,000,000
• Outstanding Shares    2,071,360,000

Earnings Per Share – Diluted

• 2009 (estimate)    $1.58
• 2008    $1.48
• 2007    $1.48
• 2006    $1.51
• 2005    $3.91
• 2004    $4.57
• 2003    $4.48
• 2002    $5.18
• 2001    $3.88
• 2000    $3.75
• 1999    $3.19

Earnings Per Share – Modern Graham

• 2009 (estimate)    $1.68
• 2008    $2.02
• 2007    $2.59
• 2006    $3.40
• 2005    $4.37
• 2004    $4.52

Valuation History:

• 11/2/09 – Value $0, Actual Price $18.30, Overvalued & Speculative