Altria's Valuation Depends on Charging More for Smokes

Source from:  NASDAQ 08/03/2011

Altria Group ( MO ) is the parent company of Philip Morris which is the largest tobacco company in the U.S. with close to 50% of the retail market share in the U.S. cigarettes market, of which Marlboro commands a giant share of more than 42%. Thanks to strong pricing power and product mix, Altria Group's operating margin from its cigarettes business has risen steadily. The company recently announced its Q2 earnings in which it reported solid operating margins and retail share in premium tobacco brands, particularly Marlboro. (See Marlboro is Still the Man at Altria, Carries Results ) Altria competes with Reynolds American ( RAI ) and Lorillard ( LO ), two of its biggest competitors in the U.S. While we estimate that Altria Group's operating margin from its cigarettes business will increase from 40% in 2011 to 45% by the end of our forecast period, Trefis members predict an increase to 47% during the same period. The member estimates imply an upside of 5% to the Trefis price estimate for Altria Group's stock. We currently have a Trefis price estimate of near $27.25 for Altria Group, Inc.'s stock , which is slightly above the current market price. Enditem