This is the conclusion from ML Research report.
Altria Group (MO) Our $75 PO is based moving its current p/e (22.4x) out one-year to YE2017. We believe that this is reasonable given anticipated tax law changes, industry/MO cigarette trends, reduced litigation risk, and its strong commitment to shareholders. Downside risks to our PO are continued poor price realization, deterioration in the litigation environment, unfavorable taxation, deeper secular declines in US cigarettes than anticipated and unfavorable FDA regulation. Upside risks to our PO are better-than-expected costcutting, a stronger category than currently envisioned, strong share gains in smokeless and stronger-than-expected net pricing.
( In other words, continued execution of a solid game plan)
Earlier in the report , IOQS and Merger were addressed.
2017 outlook largely favorable Despite the market’s recent rotation out of defensive/bond proxy names, we are enthusiastic on MO’s outlook in the medium-term given what could be some positive developments in the offing, including 1) A US tax policy change as envisioned by President-elect Trump (15%) or Speaker Ryan (20%) could materially boost MO’s EPS given its tax rate (35.5%). 2) Strength of the US economy (lower unemployment, higher wages, improved disposable income, rising consumer confidence). 3) The possible commercialization of iQOS into the US market sometime in 2017, and 4) Faster growth from beer equity income given recent moves by Anheuser-Busch InBev to deleverage quickly. 5) Now that BAT made an offer for RAI, press reports have speculated if PM/MO would remerge. While we see many potential benefits for PM to want to remerge with MO, we see limited reasons (at least currently) for MO’s mgmt to want to re-merge with PM given MO’s track record of unlocking shareholder value post the spin of PM in Mar 2008. We acknowledge that higher fuel prices, the impact on 2017 cigarette volumes given a $2/pack tax hike in CA (April 1st), above LT avg valuations, higher interest rates, market rotation out of defensive names and the continuing threat of higher state excises taxes could partially offset some of the positive benefits but we see the potential for upside EPS outweighing possible negative developments.