Altria Buys Sherman Group Holdings

GuruFocus.com

- By Alberto Abaterusso

Altria Group Inc. (MO) announced through the Business Wire the acquisition of the privately held Sherman Group Holdings and its subsidiary companies. The conditions of the deal are undisclosed.

The company markets super-premium cigarettes and premium cigars under the Nat Sherman brand.


Altria Group says that Nat Sherman will join "Philip Morris USA Inc. and John Middleton Co. as part of its smokable products segment."

With this transaction, Altria Group adds to its line of smokable products a superior class mark of cigarettes and cigars that according to George Koebel, holder of shops that sell Nat Sherman cigars and cigarettes, competes in the same segment as British American Tobacco's (BTI) Dunhill.

Marty Barrington, chairman, CEO and president of Altria Group, said that "Nat Sherman has a terrific brand portfolio which complements Altria's existing smokable product segment (Altria Group's NR)."

Altria's smokable products account for more than 87% of the company's total operating income (OCI) with Marlboro, the best-selling brand of cigarettes in the U.S. over the last four decades, proven by increasing rates in the shipment volume of cigarettes every year. Marlboro is produced by Philip Morris USA, the biggest cigarette manufacturer in the U.S.

Altria's smokable products segment also includes cigars, of which Black & Mild is Middleton's main brand of cigars. Middleton also produces and markets machinery to make large cigars and tobacco for pipes. The subsegment of cigars accounts only for 1% of the total number of units of tobacco products shipped by Altria, but it is also increasing: up 4.2% from 2014 to 2015.

Altria Group closed at $68.48 per share on Jan. 17, up 90 cents (or 1.33%) from the previous trading day, with a volume of 9,012,618 shares traded on the New York Stock Exchange versus an average volume of 5.6 million shares traded over the last 10 trading days and an average volume of 6.78 million shares traded over the last three months.

The 52-week range is between $56.15 and $70.15. Over the 12 trailing months period the price-earnings (P/E) ratio is 25.74, and the EPS is $2.66.

The stock gained 1% year to date and is less volatile than the stock market with 0.56.

The company has a market capitalization of $133.55 billion and an enterprise value of $143.5 billion; the stock is trading at 45.41 times the book value and at 15.19 times the EBITDA, which is $9.45 billion.

The company had approximately $2.3 billion in cash on hand and securities that can be readily converted into cash and $13.88 billion in total debt.

The majority of analysts suggest buying shares of Altria Group, and the analysts' average target price is $69.45, a 1.42% upside from the current share price.

During the third quarter of 2016, Joel Greenblatt (Trades, Portfolio) increased his position in Altria Group by 123.71%. Barrow, Hanley, Mewhinney & Strauss, David Dreman (Trades, Portfolio) and Ken Fisher (Trades, Portfolio) decreased their positions by 2.41%, 4.30% and 4.03%. Ruane Cunniff (Trades, Portfolio) sold out.

Disclosure: I have no positions in any stock mentioned in this article.

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This article first appeared on GuruFocus.