Philip Morris Not Just Blowing Smoke

How could anyone bet against Philip Morris(MO Quote) (soon-to-be Altria Group) at this point? I just don't get it. I mean this company has overcome so much. And despite the near-term economic uncertainty, the longer-term outlook for each of its core businesses (including Miller Brewing, Kraft(KFT Quote) and tobacco) remains quite strong.

Folks, when you buy Mighty Mo', right off the bat you are getting a dividend yield of roughly 4.9%. Plus, you are buying a company that is projected to grow its earnings by 9% in 2001 (to $4.04 a share), and roughly 11.3% in 2002 (to $4.51 a share). That's pretty darn good in my book.

Not convinced?

Then consider:

In the third quarter alone, the company repurchased 21.7 million shares of common stock at a cost of $1 billion. (This is all part of a larger, $10 billion buyback program instituted by the board of directors earlier this year.) The fact that the company hasn't plunged this money back into the business (for advertising, litigation expenses, etc.) should serve as an indication that management thinks the shares are still undervalued.

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Kraft continues to post healthy volume increases. And the integration of its Nabisco business should lead to north of $100 million in synergies. Why is this so important? Despite Kraft's initial public offering, Philip Morris continues to maintain a roughly 84% interest in the common stock.

Higher tobacco pricing and an improved product mix have enabled and are expected to continue to enable the company to report an increase in gross margin.

Both its Marlboro and Parliament brands have picked up market share and are expected to continue that trend.

Management recently confirmed that it's comfortable with analysts' estimates, despite concerns that smokers might switch to cheaper brands during these trying times.

In short, I like Philip Morris a lot. Is it the value it was at $20 early last year? Of course not. But because of its strong fundamentals and projected earnings, I still think it has another 30% upside from current levels.