Will Altria Burn Its Investors?

With shares of Altria Group Inc. (NYSE:MO) trading at around $31.85, is MO an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

To immediately answer the question in the title, the answer is likely no. However, a strong case can be made for either side. Looking it at from an originally neutral position, it seems obvious that the positives greatly outweigh the negatives. Let’s take a look at the positives first.

Altria has 45 percent market share for cigarettes, 55 percent market share for smokeless tobacco, and 30 percent market share for cigars. That’s really all you need to know, but we’ll continue. A 22.51 percent profit margin and operating cash flow over $3 billion should make any investor feel nice and cozy. A Forward P/E of 13.69 doesn’t hurt, either. Then there’s the 5.30 percent yield, which is a tremendous selling point for any wise investor. In addition to cigarettes, Altria is now involved with wines and financial services. It looks like Altria is interested in products and services that are potentially hazardous to your health. However, as an investor, this should mean nothing. The question is simply whether or not the company will continue to grow, make a profit, and reward investors.

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On the negative side, premium brands aren’t selling as well as they did in the past, which leads to lower margins. All Altria can do to combat this is push their low-cost brands a little harder. Other negatives include lawsuits, the FDA having more power than in the past to regulate the industry, as well as state and federal tax increases on cigarettes. In regards to lawsuits, Altria recently reached a settlement with 17 states related to a 1998 anti-smoking agreement. This should actually be looked at as a positive because it’s out of the way.

Now let’s take a look at some important numbers.