Kraft Sale Seen Boosting Altria Stock
Tuesday January 9, 12:54 pm ET
Analyst: Altria Restructuring, Smokeless Tobacco, Consolidation to Affect Industry This Year
NEW YORK (AP) -- Shares of Altria Group Inc., parent of Marlboro cigarette maker Philip Morris, hit a new high Tuesday after a Wall Street analyst said the stock could rise as much as 5 percent when the company spins off its controlling stake in Kraft Foods Inc.
Shares of Altria rose 14 cents to $88.12 in afternoon trading on the New York Stock Exchange, after rising as high as $88.58 earlier in the session. The shares have traded between $68.36 and $88.03 over the past year.
Citigroup analyst Bonnie Herzog said in a note Monday that the restructuring of Altria will be among the three major forces affecting the tobacco industry this year. The other two are international consolidation, of which she expects Philip Morris International to be a leader, and greater competition in the smokeless tobacco category.
Altria plans to announce on Jan. 31 the exact timing of its divestiture of a controlling 88.8 percent stake in Kraft Foods Inc., which will be distributed to Altria shareholders. Kraft's current market capitalization is $57.58 billion, meaning Altria's stake is worth about $51 billion.
Once the company announces the timing on Jan. 31, it would be expected to distribute the shares as a dividend to Altria stockholders within 120 days. Analysts expect the company to also eventually break apart its domestic and international cigarette units.
The smokeless category continues to be a growth area for the industry, Herzog wrote, as the sector expands at a rate in the mid- to high-single-digit range. The companies see smokeless tobacco as an area for expansion as consumption of traditional cigarettes continues to fall by about 1 percent to 2 percent a year.
The top two American cigarette makers, Philip Morris USA and Reynolds American, maker of Camel and Salem brands, both have plans to grow sales of smokeless products. Reynolds bought smokeless tobacco company Conwood in May. Conwood makes Kodiak snuff and Levi Garrett chewing tobacco. And Philip Morris USA has been test marketing a new product, Taboka, in Indianapolis. It may either enter other cities to continue test marketing or launch nationally.
Tobacco companies may also seek more acquisitions in emerging markets abroad, such as in Eastern Europe and Asia. Philip Morris International may lead, Herzog wrote.
"Based on comments from Altria's management, we believe PMI will play a role in the global tobacco consolidation in the future and this time it will be a leader," she said.
Shares of Reynolds American fell 15 cents to $64.50 on the NYSE.
AI
