Tobacco.org

A Silver Lining Clings to Tobacco  

But the investor Warren Buffett has said that some apparently drooping businesses can deliver more puff than expected. He called such stocks cigar butts, and Altria could be one of them. . . .

Yet it wasn't all bad at Altria in the third quarter. Net revenue excluding excise taxes fell 11.3 percent in the cigarette segment -- less than the decline in volume, suggesting the company managed to raise average prices. Add in other businesses including UST, the chewing tobacco and snuff maker acquired by Altria this year, and the group managed to eke out a 1.7 percent overall increase in profit as net revenue excluding taxes slid just 0.5 percent in the quarter. Cost cutting helped, too.

Altria's stock currently trades at just under 10 times consensus estimates of 2010 earnings, slightly below Reynolds American's multiple, despite what some analysts view as a more powerful stable of products. Pricing power, especially at Marlboro, could surprise -- as could cost cutting and contributions by the smaller business units. It would be oddly fitting if the tobacco-dominated company did turn out to be one of Mr. Buffett's cigar butts.

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