January 7, 2008

Altria today


Altria today was on fire rising more than 3% for no apparent reason. Probably the fact that their January board meeting is getting close and some traders are speculating on the spin off and share buy backs.


I think that the stock will go higher still, is it justified? Well the company has great management, tons of cash flows and good fundamentals but it is fairly priced so it is very hard to make a case for it as a value investment.


I think that Altria US, the remaining entity after spinning off PM International, will be sold off tremendously after the spin off, as investors will dump it to hold on to the faster growing and litigation free PM International. I think the sell off will present a buying opportunity as Altria US will have a higher dividend yield and still great free cash flow stream. Off course it all depends on the detail of the spin off ratios.


I think Altria will serve its shareholders if it breaks itself to three separate companies and sell its stake in SABMiller. The three separate companies are:
  • Brand and R&D holding company

  • International manufacturing and distribution

  • Domestic manufacturing and distribution

The division have the following benefits:

  1. Distribute litigation risk among three entities

  2. Allow the manufacturing and distribution to manufacture generics since they have the economies of scale and capacity to do so. This will open additional revenue growth potential.

  3. The Brand and R&D company will license its products to the other two. Think Coca-Cola and its bottling companies.

What do you think?

2 comments:

MG said...

I would think MO would be up just because of the general move to these type of stocks because they are recession resistant.

I read an article the other day where MO was named the best stock of all time, based on total returns including dividends.

Sami said...

You are right most consumer staple stocks are up big time.

Indeed MO is one of the best long term performer, it is incredible that it averaged 19% annually since the 1950's.