Tobacco companies are facing difficult days. Ever increasing regulations in this country, declining market size, and consistent lawsuits against manufacturers have left these companies scratching for revenue growth. And overseas markets, often viewed as a panacea due to less regulatory environments, have also ratcheted up pressure against cigarette makers. Many tobacco companies are investing in alternatives to traditional markets and cigarettes to maintain profit growth. Many European nations have smoking rates nearly twice that in the United States. And nearly half the world’s smokers live in either China or India. I am not a fan of the industry, especially since the average age of one beginning to smoke around the world is 13. But putting that aside, I will analyze a handful of tobacco stocks, looking at balance sheets, historical returns to shareholders, and profit and growth trends.
Altria Group, Inc. (MO)
MO is the sole owner of Philip Morris USA. It is therefore the nation’s number one cigarette maker, with brands such as Marlboro and Virginia Slims. It purchased U.S. Tobacco in 2009, so MO also holds a dominant share of the domestic smokeless tobacco market. It holds smaller interests in machined cigars, a winery, and a finance business. MO’s stock was recently trading at just under $29 per share. Its 52-week range is from $29.05 to $23.20, and its market capitalization is just over $59 billion. It has a P/E of 17.2, and pays a current dividend of $0.41 per quarter, for a yield of 5.7%.
The good news from the third quarter of 2011 is that MO continues its stranglehold on the domestic cigarette market, as it held a nearly 50% market share in 2010.