Hmm. I see what you are talking about. 60% of the $6 billion or so that MO pulls in a year will be slated to go to the settlement. So, it looks like $2.4 billion would be left, and based on the same 2.4 billion shares outstanding in MO, we're looking at about an EPS of about $1/share after the settlement costs are factored in. However, we are not talking about the same settlement any more, as the price tag has dropped from $368.5 billion down to about $196 billion, but the time period is still the same, 25 years.
Therefore, I assume the annual cap would be closer to $4.5 billion with the state's deal. And if MO were to pay 60% of that amount, $2.7 billion annually dished out to the states. That would drop MO's profits down to about $4 billion/year, and the EPS would drop down to just under $2. If that were the case, then MO would be trading at roughly 24x earnings, and fairly priced for a settlement.
I still believe that the news of a settlement would cause the stock's P/E to increase dramatically for a while, especially if the dividend remains in place, and the company also announces the recommencement of the stock buyback.
All the analysts simply argue that without fear of the state medicaid cases, MO should be trading at multiples closer to PG et al, which is around 27+ at this time.
Yet it is still very likely that MO will see increased margins in the tobacco business, especially abroad. At the point of the settlement, we may end up seeing something we all thought would never occur, that MO spin off its tobacco arm.
later,
geoff |
