Merrill Lynch added
to a favored-stock list and lifted its price target, saying potential legal victories heighten the possibility it will complete its separation from
Merrill put the Philip Morris parent on its Focus One list and raised the price target to $63 from $50. The shares were recently up $1.45, or 3%, to $48.75 on the Instinet premarket.
Altria currently owns about 88% of Kraft after selling a sliver in a June 2001 initial public offering. Merrill thinks that by spinning off the rest, the company's non-food operations are more likely to trade at an industry multiple, which it said is around eight times enterprise value over earnings before interest, taxes, depreciation and amortization.
"Our target envisages the tobacco stub appreciating by at least $15.70 to $40.65 from the current $24.95," Merrill wrote. "In essence, we think that the market's concern with the two key litigation issues facing Philip Morris USA, namely Price/Mills and the Justice Department suit, will likely wane over time."
The Justice Department suit is an industrywide RICO claim alleging price fixing. The Price/Mills suit is a complaint in Illinois alleging cigarette makers misrepresented the risk of light cigarettes.
Merrill's $63 price target assumes value of about $21 in Kraft.