MO a Buy?
Send the suits home.
The cigarette litigation mess is over.
On Friday I spoke to a portfolio manager and friend at Morgan Stanley regarding the compelling Philip Morris/Altria research report the firm's David Adelman just put out.
Jim Cramer beat me to the punch, unfortunately; he profiled Altria on Friday night's taping of Mad Money.
Anyways, here is the skinny.
Adelman thinks Philip Morris (MO) is going to break up the company.
Adelman, a highly recognized tobacco analyst, is convinced the sum of Altria's parts is greater than its whole.
The stock is up more than 150% over the last 24 months, yet Adelman says Morris' enterprise value could fetch over $100 a share upon breakup.
It's a tough call.
I don't own MO -- but if I did -- I'd be painfully tempted to sell at least half my position here (depending more or less on my entry point).
On the other hand, a breakup in the near future is more plausible than you may think:
The research firm said Altria presents the most attractive risk-reward dynamic year-to-date in its industry, despite trading at close to an all-time high. Morgan Stanley believes the Avery and Watson court rulings have materially improved the industry's overall legal risk profile, making an Altria break-up significantly more likely.
However, Altria may decide to delay a breakup until there is greater clarity in the Justice Department lawsuit.
The capital markets should increasingly view an Altria break-up as only the first phase of a two-stage process...A break-up could ultimately be followed by a significant leveraging-up of Altria's and Phillip Morris' independent balance sheets.
We're going to shut up for once and forgo putting a rating on Altria until some more news develops.
Tough move, because deep down we really like Altria, especially that juicy 4% dividend. |
