The $130-billion Altria Group (MO - Get Report) , famous for premium tobacco brands, Marlboro, Black & Mild, Copenhagen and Skoal, is a smart investment opportunity in these troubled times.
With above-average earnings prospects, bargain valuations, sharp operating margins and an over 3% dividend yield, Altria exemplifies solidity, profitability and long-term growth potential.
According to Morningstar, the brand controls over 40% of the U.S. cigarette market and Altria is expected keep surging forwards, unabated.
It's no secret that Altria's tobacco businesses have a stranglehold across the most profitable tobacco categories in the U.S. Altria operates in segments such as cigarettes, smokeless tobacco products and cigars.
Like Marlboro, Altria's other brands Black & Mild, Copenhagen and Skoal boast of unbeatable brand equity along with demographics that push for higher pricing.
From 2011 to 2015, Altria clocked over 8% compound annual growth on earnings-per-share (EPS) growth while at the same time, consistently growing dividends.
Over this period, the company also propelled total shareholder returns of 204%, over double the S&P 500 returns.
While rivals like Japan Tobacco are striving to make in-roads and grab market share in the U.S., Altria (with its wide brand moat) will easily thwart such attempts. Add to that, revenues for smokeless products for Altria was up 9% on the back of volume gains.
Encouraged by its stellar performance, Altria has now pushed full-year EPS guidance to $3.01-to-$3.07, ahead of the $3.05 consensus. If the tobacco arm isn't rippling with glorious money-muscle, Altria's also extra-equipped with its wine and beer assets.
Equity earnings from Altria's SABMiller stakes have grown from $600 million in 2010 to over $1 billion in 2015. And then, there's Ste. Michelle Wine Estates with a strong portfolio of premium brands. The impending SABMiller deal with Anheuser-Busch InBev (BUD) should again prove to be a boost for Altria. Our positive thesis on Altria is also partly on account of the buzz around consumer staples. Investors feel Altria (up 27% in 52 weeks) is an incredibly appealing investment amid prevalent global volatility and low interest rates.
To us, Altria's five-year total returns of over 24.20% annually is testament to the fact that investors don't need fast-paced tech stocks to garner huge returns. Altria beats the total returns of tech titans like Apple (18.2%) and Microsoft (21.29%) in the same five-year period.
Given its premium position in the cigarette/tobacco segment, Altria's tobacco divisions like Philip Morris USA, US Smokeless Tobacco, John Middleton, and NuMark will hold onto their respective positions in markets. Long-term returns from Altria have left little reason to complain.
Trading at less than 20 times forward price/earnings, Altria's shares offer a stable opportunity to make the most of the tobacco industry's growth and recycle the cash generated in the form of strong and stable dividends.
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