Altria upgraded twice as legal troubles seen ending
November 18, 2004 12:29pm ET (CBS MarketWatch)
NEW YORK (CBS.MW) - Analysts at Goldman Sachs and Prudential upgraded Altria Thursday, saying the tobacco giant's legal troubles appear to be nearing resolution.
"With oral arguments behind us in all of the three major legal issues facing the tobacco industry, the clock is ticking toward what we believe will be several significant, positive legal catalysts for the tobacco industry and Altria in particular," Prudential Equity Securities analyst Robert Campagnino told clients in a note.
Campagnino boosted his recommendation on Altria Group to "overweight" from "neutral weight" and raised his price target to $68 from $54.
Goldman Sachs analyst Judy Hong was also optimistic.
"Our increased enthusiasm towards MO is based mainly on our increased confidence level that all three key class-action styled lawsuits are now likely to be resolved by mid-2005," she said.
Hong raised her rating on the stock to "outperform" from "in-line" and raised her view on the U.S. tobacco sector to "attractive" from "neutral."
Shares of Altria rose $1.52, or 2.6 percent, to $58.93.
The analysts were cheered by recent developments in the tobacco industry's long-running legal battles.
On Wednesday, the DC Circuit Court heard oral arguments on whether the Department of Justice can use disgorgement - an especially potent legal weapon -- against tobacco companies.
Hong said the session showed that at least two judges on the three-judge panel opposed disgorgement, a decision that would leave the DOJ "defanged."
Prudential analyst Campagnino came to a similar conclusion. The court's expected decision against the use of disgorgement would "greatly reduce the risk associated with a potential loss by the industry," he said.
Campagnino also saw positive outcomes to two other tobacco lawsuits currently being considered in the Florida Supreme Court and the Illinois Supreme Court. Such outcomes would be a boost for Altria and its shareholders, he said.
"We believe that there should be multiple expansion associated with favorable outcomes in each of these situations, and believe that it is the intention of Altria management to undertake aggressive financial engineering should the litigation environment permit it," said Campagnino.
At Goldman Sachs, Hong noted that Altria has already enjoyed a 15 percent gain over the past few weeks in anticipation of the legal outcomes. "But we believe it's not too late to commit fresh money to the stock, as we see another 15-20 percent upside potential in MO's stock price in the near-term," she said.
She expects the stock to trade at $67 to $68 in the near term.
"This should put MO in a position to break-up the company into three component pieces sooner than we thought, driving the stock price to move towards its sum-of-the-parts value, which we estimate to be $75 to $80 today," she told clients. |
