Cigaratte company, owns Marlboro as a main brand and other non-combustible type of cigarrates such as E-Vap, IQOU, JUUL patch. Also own companies such as AB INBEV (largest beer company)/ 10% share and cannibodiol company to take advantage of the growing legalization of marijuana in USA and various countries.
Falls under the FACTOR categories of >10 year dividends and value.
Business is sticky in nature since people are addicted to tobacco. Major risk is government policy in view of potential health risk of tobacco and marijuana.
Trend of smoking is not good as company is registering steady decline of 3-5% every year. However, the revenue still manage to stay relatively flat. If new products are able to counter the traditional products decline, company business will be better.
High margin and cash flow generation business hence supporting its consistent dividend payout which is currently near 80% of EPS.
Latest quarter interest coverage of ~8x on operating income and 6x on net profit.
Gross margin is high at 50% with net profit margin of 30%.
Management forecast 2019 EPS to be $4 which translates to a PE ratio of 10x appearing to be attractive under current rich valuation of general market. Yield is ~6-7% which is attractive.
Long term debt is 27B vs short term debt of 2B and cash holding of 1.8B. Long term assets mainly backed by investments in equity securities of 32B and goodwill/intangible assets of 17B which is easy target for impairment. Total debt/ebita is 2.8x.
Doesn't look stretch in terms of ability to pay off interest with cash generation.
Debts are pretty well stretch out with every year's payoff of 4-5B with fixed interest rate.
Operating cash flow per year is 3-6B. There is ample ability to pay off the interest requirements.
They just spent 12B to purchase JUUL which is a huge bet in future vaping industry. With recent news of people dying of vaping, it may hit on their business. JUUL is likely overvalued since it is a startup. Future impairment of goodwill is possible if JUUL does not live up to standard. This deal appears to be largely finance by debt.
Altria is a falling knive. Be careful!
https://seekingalpha.com/article/4291598-altria-falling-knife
Better think twice. Observe more first. Dont bet against secular trend. Unless the price drop is drastic enough to make it valuable. Poor steward of capital with JUUL purchase which is vastly overpaid.
Potential merger with Philip Morris may further increase their debt and weaken their balance sheet.
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