Alcohol & Tobacco Stocks

Altria Group Inc Valuation – January 2019 $MO

Company Profile (excerpt from Reuters): Altria Group, Inc., incorporated on August 27, 2009, is a holding company. The Company’s segments include smokeable products, smokeless products and wine. The Company’s subsidiaries include Philip Morris USA Inc. (PM USA), which is engaged in the manufacture and sale of cigarettes in the United States; John Middleton Co. (Middleton), which is engaged in the manufacture and sale of machine-made cigars and pipe tobacco, and UST LLC (UST), which, through its subsidiaries, including U.S. Smokeless Tobacco Company LLC (USSTC) and Ste. Michelle Wine Estates Ltd. (Ste. Michelle), is engaged in the manufacture and sale of smokeless tobacco products and wine. Its other operating companies include Nu Mark LLC (Nu Mark), a subsidiary that is engaged in the manufacture and sale of tobacco products, and Philip Morris Capital Corporation (PMCC), a subsidiary that maintains a portfolio of finance assets. Other subsidiaries include Altria Group Distribution Company, which provides sales, distribution and consumer engagement services to certain its operating subsidiaries, and Altria Client Services LLC, which provides various support services in areas, such as legal, regulatory, finance, human resources and external affairs, to the Company and its subsidiaries. The Company’s financial services business (conducted through PMCC) holds investments in finance leases, principally in transportation (including aircraft), power generation, real estate and manufacturing equipment.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MO – January 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $90,682,708,546 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.60 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 227.13% Pass
6. Moderate PEmg Ratio PEmg < 20 10.25 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.86 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.60 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -3.42 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.71
MG Growth Estimate 15.00%
MG Value $181.28
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $68.28
MG Value based on 0% Growth $40.02
Market Implied Growth Rate 0.87%
Current Price $48.26
% of Intrinsic Value 26.62%

Altria Group Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.21 in 2014 to an estimated $4.71 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.87% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Altria Group Inc revealed the company was trading above its Graham Number of $26.74. The company pays a dividend of $2.54 per share, for a yield of 5.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 10.25, which was below the industry average of 19.84, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-12.37.

Altria Group Inc receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$12.37
Graham Number $26.74
PEmg 10.25
Current Ratio 0.60
PB Ratio 5.86
Current Dividend $2.54
Dividend Yield 5.26%
Number of Consecutive Years of Dividend Growth 8

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $5,165,000,000
Total Current Liabilities $8,646,000,000
Long-Term Debt $11,896,000,000
Total Assets $43,953,000,000
Intangible Assets $17,692,000,000
Total Liabilities $28,457,000,000
Shares Outstanding (Diluted Average) 1,883,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.93
Dec2017 $5.31
Dec2016 $7.28
Dec2015 $2.67
Dec2014 $2.56
Dec2013 $2.26
Dec2012 $2.06
Dec2011 $1.64
Dec2010 $1.87
Dec2009 $1.54
Dec2008 $2.36
Dec2007 $4.62
Dec2006 $5.71
Dec2005 $4.99
Dec2004 $4.56
Dec2003 $4.52
Dec2002 $5.21
Dec2001 $3.87
Dec2000 $3.73
Dec1999 $3.19
Dec1998 $2.20

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.71
Dec2017 $4.74
Dec2016 $4.09
Dec2015 $2.41
Dec2014 $2.21
Dec2013 $1.98
Dec2012 $1.86
Dec2011 $1.98
Dec2010 $2.50
Dec2009 $3.16
Dec2008 $4.13
Dec2007 $4.97
Dec2006 $5.10
Dec2005 $4.74
Dec2004 $4.53
Dec2003 $4.38
Dec2002 $4.09

Recommended Reading:

Other ModernGraham posts about the company

Altria Group Inc Valuation – March 2018 $MO
Altria Group Inc Valuation – June 2016 $MO
5 Speculative and Overvalued Companies to Avoid – January 2015
Altria Group Inc. Annual Valuation – 2015 $MO
14 Companies in the Spotlight This Week – 1/25/14

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Altria Group Inc Valuation – March 2018 $MO
Molson Coors Brewing Co Valuation – March 2018 $TAP
Molson Coors Brewing Co Valuation – Initial Coverage $TAP
Constellation Brands Inc Valuation – February 2017 $STZ
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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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