Altria Group Warrants Bearishness

Zacks senior consumer products analyst Steven Ralston, CFA is keeping his Sell recommendation on shares of Altria Group (MO - Analyst Report). For reasons why, we checked out his latest Sell report on the company: “Altria Group is the leading domestic tobacco company. The company generates significant cash flow and has a high dividend yield. However, the company is engaged in numerous tobacco liability suits. Several large punitive damage awards have been upheld by appellate courts, especially the $50 million judgment paid out in the Boeken case after the U.S. Supreme Court refused to hear the case. “Also, the pending class action lawsuit by the light cigarettes smokers negatively impacted the stock. In September, 2006, Judge Jack Weinstein granted class action status to smokers who claim that they were misled by the company into believing that light cigarettes were safer than the regular ones. The compensatory damages are expected to be in the range of $120 billion to $200 billion and, since the lawsuit was filed under the RICO Act, the estimated damages can be tripled up to $600 billion. “Altria's stock has traded in a P/E [price-to-earnings] multiple range of 6 to 18 over the last 10 years. The stock has maintained a low P/E, due to tobacco-related litigation issues, and has been pressured down to a single-digit P/E during times of court case losses. We expect Altria's stock to trade in a P/E multiple range of 12 to 16. The target price of $68.00 is 16 times our 2007 earnings estimate. The stock is rated a Sell.” Read the analyst report on MO

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