Thursday, December 15, 2005

Court Bust: Altria

Big tobacco leapfrogged its death knell Thursday after an Illinois Supreme Court tossed out a $10 billion damages award in a fraud suit against Altria (MO).

The decision removes a major uncertainty at the tobacco and food conglomerate and possibly cleared the way for a breakup, which we wrote about months ago (we thank Morgan Stanley for the research).

On Thursday, Altria's shares popped to an all-time high of $78.05.

Readers should understand that shares of Altria could easily hit $100 in the near term.

Morgan Stanley tobacco analyst David Adelman is convinced the sum of Altria's parts is greater than its whole.

A breakup presents the most attractive risk-reward dynamic for the industry; in addition, court rulings like today's have materially improved the industry's overall legal risk profile.

With a 4.4% dividend yield and plenty of good news not yet factored into the stock -- Altria's smoking hot.

So maybe they don't have the newest piece of enterprise software or a CEO whose face is plastered on CNBC 24/7, but Altria does have $90 billion in sales as well as plans to expand overseas.

The stock trades at 15 X earnings, which is preposterous -- we expect MO to trade up to at least 18-19 x earnings in early 2006.

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