Ralph, here's a rough brute force analysis of MO after legal woes go away.
For 1997 MO's three major divisions pulled in the following profits:
Tobacco - $4,236.19 million
Food - $1,973.1 million
Beer - $246.71 million
Now, if you want an EPS for each division based on MO's 2.432 billion shares you get:
Tobacco - $1.74/share
Food - $0.81/share
Beer - $0.10/share
The average P/E of food companies is 26.1 (based on K, UL, CPB, AOT, CAG, HNZ and PG), while the average # share outstanding is 558 million. The average P/E of beer companies is 23.75 (based on BUD, and ACCOB), while the average # shares outstanding is 258.5 million.
If we apply these average share amounts to MO's food and beer divisions we get an EPS of:
Food - $3.53/share
Beer - $0.95/share
Let's say MO currently trades at 47. Well, if we took this assumed EPS for food, then MO's P/E would only be 13.31, which is well below the average P/E for food companies of 26.1. And for beer our P/E would be 49, a little on the high side.
IMHO I would say that MO should really be trading at a multiple somewhere between the food and beer averages, around 24x or 25x earnings. This would put MO roughly well within the price range of $65/share. However, with higher margins in tobacco, we could easily see a higher price, it really depends on when the settlement kicks in, because the settlement will likely end this current price war, thus improve the bottom line. Conservatively though, with a state settlement announced, and agreed to, MO should be fairly valued at $65/share.
hope this helps somewhat, if this makes sense,
geoff |
