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Our Reports on Stocks in the Tobacco Industry

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Image Source: Altria Structure of the Tobacco Industry The oligopolistic tobacco industry is attractive in a number of ways. Firms sell an “addictive” product (cigarettes and/or smokeless tobacco), have significant pricing power, generate high margins, and strong returns on invested capital. Still, declining trends in smoking in the US, threats of tobacco-related litigation, new tobacco regulation (labeling) that discourages tobacco use, and excise tax price shocks that may impact demand will always be concerns. In any case, we tend to like the structural characteristics of the tobacco industry and the shareholder-friendly policies of constituents. We’ve reallocated our resources to cover more recession-resistant stocks. See here.

Strong Performance from Big Tobacco in Third Quarter

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What was once one of our favorite hidden gem holdings has turned into a ‘letting this winner run’ scenario. Newsletter portfolios holding Altria (MO) reported quality third-quarter results October 29, as it grew revenue at a solid 3.2% rate. The firm’s fundamentals remain rock-solid, as it leveraged the revenue expansion into adjusted diluted earnings per share growth of 8.7% to $0.75. Management reaffirmed its 2015 full-year guidance for adjusted diluted earnings per share of $2.76-$2.81, which represents growth of 7.5%-9.5% over 2014 levels. The company was also pleased to report its continued cooperation and support of the AB-Inbev (BUD) and SABMiller (SBMRY) merger as SABMiller’s largest shareholder. The deal offers a compelling opportunity for Altria to strengthen its position in … Read more

Altria Outperforms; Smoking Marlboros Back on the Rise?

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We’ve pounded the table time and time again on Altria (MO), even including it in both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio. The company has been one of our favorite corporate dividend payers, and its large equity stake in SABMiller (SBMRY) offers it financial flexibility like few others. We thought shares have been undervalued for some time, but in the mid-$50s each at present, we’re looking to trim our position. We may use the release of the August edition of the Dividend Growth Newsletter to do so. Altria has a ~4% dividend yield and boasts a 1.2 Dividend Cushion ratio. Fundamentally speaking, things could not be better for Altria. Second-quarter net revenue advanced nearly 6%, to … Read more

Knowing When to Consider Selling Altria

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Image Source: Jonny Williams There are three things you have to know about Altria (MO). First, the company has tremendous pricing strength, which works wonders on driving increased profitability and free cash flow across its core business lines. Second, the company has a lucrative ~27% economic stake in SABMiller (SBMRY), which offers the firm financial flexibility like no other tobacco stock. And third, the entity pays a dividend that makes some REITs and MLPs envious. Altria is one of our favorite corporate dividend growth stocks, and this won’t change anytime soon. The tobacco giant said April 23 that first-quarter adjusted diluted earnings per share leapt more than 10%, to $0.63. Affirming its 2015 full-year adjusted diluted earnings per share guidance … Read more

Dividend Increases for the Week Ending February 20

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Below we provide a list of firms that raised their dividends during the week ending February 20. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week Analog Devices (ADI):  $0.40 per share quarterly dividend, was $0.37. Argo Group (AGII): now $0.20 per share quarterly dividend, was $0.18. Autoliv (ALV): now $0.56 per share quarterly dividend, was $0.54. Coca-Cola (KO): now $0.33 per share quarterly dividend, was $0.305. Colgate-Palmolive (CL): now $0.38 per share quarterly dividend, was $0.36. Corrections Corporation of America (CXW): now $0.54 per share quarterly dividend, was $0.51. CVR Partners … Read more

Altria Raises Lower End of 2014 Earnings Guidance Range

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Tobacco giant Altria (MO) reported second-quarter results Tuesday. The firm is one of the most widely-followed stocks on our website and is included in both the Best Ideas portfolio and Dividend Growth portfolio. Though Altria’s revenue expanded modestly, net of excise taxes, in the quarter thanks to the firm’s tremendous pricing power, cigarette smoking continues its steady and expected decline in the US. The company’s second-quarter adjusted domestic shipment cigarette volume dropped ~4% in the period, though its core brand Marlboro continues to increase its retail share of the total cigarette category (up 0.3 retail share points in the second quarter). Altria’s smokeless products segment fared better, growing both the top-line and operating income at a faster clip than the … Read more

Beer and Cigarettes

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Update: Shortly after the publishing of the following article, Reynolds American announced that it would acquire Lorillard in a deal valued at $27.4 billion, or a deal price of $68.88 per share (in-line with the high end of our fair value estimate range for Lorillard, as predicted). For more details >> ————— Let’s pick up right where we left off. On May 22, we commented that Reynolds American (RAI) and Lorillard (LO) have been looking to combine operations. Here’s what we wrote at that time: According to recent reports, tobacco giants Reynolds American and Lorillard continue to work to tie the knot. The speculated deal is rumored to be a three-way transaction that involves Reynolds’ shareholder British American Tobacco (BTI), … Read more

Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

Valuentum Interim Newsletter Update

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Summary Best Ideas, Dividend Growth Portfolio Holding Apple Crosses Above $600! Best Ideas, Dividend Growth Portfolio Holding Altria Keeps Marching Higher! Removing DirecTV from Best Ideas Portfolio  June Edition of Dividend Growth Newsletter to Be Released June 1 Dear Member, We’d like to share a few updates today. First of all, we are very pleased with Apple’s (AAPL) recent stock-price performance. As you know, Apple is the largest weighting in the Best Ideas portfolio and one of the largest positions in the Dividend Growth portfolio. We’re very excited about the acceleration of the company’s iPhone 6 launch, and we think the firm is worth north of $700 on the basis of our discounted cash-flow analysis. View its landing page here. … Read more

Reynolds American and Lorillard Looking to Join Forces; Altria Benefits from SABMiller Strength

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According to recent reports, tobacco giants Reynolds American (RAI) and Lorillard (LO) continue to work to tie the knot. The speculated deal is rumored to be a three-way transaction that involves Reynolds’ shareholder British American Tobacco (BTI), but the timing of any deal is uncertain, and any specific pricing information has been limited. Usually, consolidation results in an industry with significantly more pricing power, but the tobacco makers already have substantial strength in this department. We would therefore expect the transaction, if consummated, to result more in cost savings than in revenue enhancements. We’d also expect the deal, if completed, to result in some divestitures to please regulators, and we think this could pave the way for either Philip Morris (PM), … Read more