Stifel Nicolaus: Buy Rating for Altria - TheStreet

Stifel Nicolaus: Buy Rating for Altria

Stifel Nicolaus analysts maintain a buy rating on Altria amid expected higher profits at its smokeless tobacco unit.
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) -- Stifel Nicolaus maintains a buy rating for


(MO) - Get Report

with a $22 price target in anticipation of factors including strong growth at its smokeless tobacco unit and the general industry ability to adapt to a changing competitive landscape.

Altria on Thursday provided a 2010 earnings forecast of $1.85 to $1.89, which was generally in line with the consensus estimate of $1.87. Meanwhile, Stifel Nicolaus analysts have predicted earnings of $1.86 for the year.

"We derive this by assigning a 12x P/E multiple to 2010 EPS and a 7.0x EV/EBITDA ratio, which we believe sufficiently discounts the inherent risks in the tobacco industry," Stifel analyst Christopher Growe wrote in an investor note regarding the buy rating and price target for Altria.

The Stifel analysts believe that Altria's smokeless profits should start to benefit from cost savings and grow strongly in 2010. One of the star performers at Altria's smokeless tobacco unit has been Copenhagen, and the Stifel analysts believe the Copenhagen Wintergreen was a nice addition to Altria's portfolio. "While at a relatively low promotional price we do believe this price will increase in 2010," Growe writes.

In late 2008, Altria announced that it had agreed to buy UST, a global smokeless tobacco manufacturer whose products included Copenhagen, Skoal, Red Seal and Husky. Stifel analysts believe that the UST integration has been going well. In fact, Altria expects EPS accretion from the acquisition in 2010 due to stronger volumes, less aggressive promotional spending and cost savings, the Stifel analysts note.

Altria on Thursday reported fourth-quarter earnings of 39 cents per share, up 5%, which was one penny above Stifel's estimate and roughly in line with the consensus estimate. Marlboro's market share was flat in the quarter representing an improvement from its slight market share loss last quarter, the Stifel analysts noted.

From a broader industry perspective, US tobacco stocks faced a tough environment in 2009 with the increased federal excise tax, awave of state excise tax increases, and the passage of legislation that gave the FDA authority to regulate tobacco, Stifel noted.

However, the strong performance of the shares reflected the industry's ability to adapt to the changing competitive landscape and do so while emphasizing profit growth, Stifel added. Given all this, Stifel estimates profit growth in 2010 in most divisions with only a slight decline forecasted for the cigarette division.

"The cost savings should be relatively significant throughout the yearand could help push our estimate up from here," Growe wrote.

Altria stock closed Thursday up 2 cents, to $20.10.

A number of other tobacco stocks have also taken some losses.



finished the day down 0.3% at $53.81, while



closed up up 0.4% to $76.57.

Philip Morris International

(PM) - Get Report

stock fell 0.9% to $46.21 Thursday.

-- Reported by Andrea Tse in New York

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