Is Altria Group Inc (MO) A Smoking Investment?

Altria Group (MO)Editor’s Note: This article contained inaccurate information regarding declines in Altria’s revenue and book value, and that information has been removed.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As 2013 begins, I would like to focus on a leader in the United States tobacco industry: Altria Group Inc (NYSE:MO) Incorporated .

Strengths:

Dividend: Currently, Altria Group Inc (NYSE:MO) pays out quarterly dividends of $0.44, which when annualized puts the dividend as yielding 5.15%
Double Digit Margin: At the moment, the company carries a net profit margin of 20.40%, leaving plenty of room for unexpected expenditures
Institutional Vote of Confidence: 60% of shares outstanding are held by institutional investors, displaying the confidence some of the largest investors in the world have in the company and its future
Solid Net Income Growth: In 2008 Altria Group Inc (NYSE:MO) reported net income of $3.09 billion; in 2012, the company announced net income of $4.18 billion, representing year over year annual growth of 7.85%, despite experiencing negative revenue growth during this period, which represents a company with expanding margins (Not Profit Margin: 2008=16.0% 2012=23.9% 2015 Projected=29.3%)
Addictive Business Model: Altria Group Inc (NYSE:MO)’s products–cigarettes, smokeless products, cigars, and wine–are all extremely addictive to the users, which establish solid revenue streams for years to come

Weaknesses:

  • High Valuation: Currently, Altria carries a price to earnings ratio of 16.60, a price to sales ratio of 2.81, and a price to book ratio of 21.85; all of which indicate a company trading with a high valuation when the company’s growth prospects are taken into account
  • Unhealthy Offerings: All of the company’s offerings are unhealthy products, and have been proven to have a distinct link to users’ deaths, which is a major weakness of the company
  • Net Debt: Despite possessing $2.2 billion of cash and cash equivalents on their balance sheets, the company’s $14 billion debt load results in a net debt of $11.8 billion, which could be a potentially dangerous factor

Opportunities:

Increasing Revenue per Cigarette: In 2008, Altria Group Inc (NYSE:MO) derived $0.111 of revenue from each cigarette; currently, the company derives $0.161 of revenue from each cigarette it sells, and further growth in this figure will benefit the overall company

Product Innovation: Offering innovative products could excite customers and capture market share, boosting revenue growth

Growth in the Smokeless Products Market: The United States smokeless products market is one of the fastest growing in the world, going from $1.18 billion in 2009 to $1.38 billion currently, and further growth in this market could result in revenue growth (15.95% of overall business is concentrated in the smokeless products segment)