Altria Group Incorporated: Strengths, Weaknesses, Opportunities, and Threats
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A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. Fresh off their third quarter financial results, which were relatively in-line with expectations, I would like to focus on the owner of the United States operation of the Philip Morris Company, Altria Group (NYSE: MO).
- The company’s main product, cigarettes, are addictive, and once a customer starts buying them, it is hard for them to stop buying them
- The company pays out quarterly dividends of $0.44,which annualized puts the company’s dividend as yielding 5.55%
- Since implementing dividend payouts in 1987, the company has consistently paid out and raised its dividend payments
- The company is heavily established, possessing a value of $64.20 billion on the market
- The company’s stock is relatively un-volatile, with a Beta ratio of only 0.43
- Long-term investors believe strongly in the company’s prospects as 62% of shares outstanding are held by institutional investors, such as pension plans
- The company sells products that are the opposite of necessities, as cigarettes, smokeless products, cigars, and wine are not as essential as toilet paper and toothpaste
- The company produces products that have over and over again been distinctly linked to the death of their consumers, and eventually these products must be erased from society
- The company is facing a situation in which their revenue is steeply declining and is expected to continue to downtrend into the future, as net revenues from 2010 to 2011 fell 2.3%
- The company operates in only one country, the United States, and thus is very vulnerable to any economic slowdowns exclusive to the U.S.
- Smoking is a very expensive habit, costing upwards of $2,000 a year to smoke a pack a day, and not all consumers have the resources to purchase their products
- Smokeless products has proved to be a trend growing in popularity, and Altria should benefit from the growth in the sector, as just from 2010 to 2011 there was 4.8% growth in the smokeless products segment of their business
- Further integration of their wine brands into the wide-spread market is a possibility as just from 2010 to 2011 the wine segment of their business grew 12.4% in net revenues
- Their financial services segment was a huge drag on their business in 2011, with net revenue of negative $313 million, and at least breaking even could significantly help the core business
- The American population is one of the most educated populations in the world, and thoroughly understands the complications of smoking cigarettes, and this should lead to fewer people smoking in the next generations
- Competition is always a factor, as Altria is not the only kid on the block, and this competition leads to the squeezing of margins
- Any health agency or environmental agency is strictly against Altria and its main product, cigarettes, and fight day and night against the company
Major publically-traded competitors of Altria include Lorillard (NYSE: LO) and Reynolds American (NYSE: RAI). Both of these companies produce cigarettes and smokeless products that directly compete with Altria’s products. Lorillard’s most prominent brand is Newport, and like Altria, only sells in products in the United States. Reynolds’s most prominent brand is Camel, and like the other two companies only operates in the United States.
Altria possesses many strengths, weaknesses, opportunities, and threats; however in the end appears to be a company of the past, not the future. While the cigarette craze will not die off for several more years, the inevitable end for the cigarette industry is extinction. Other than the company’s extremely attractive dividend, I cannot see many more reasons why to buy this company.
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