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MO sum of the parts analysisWith MO closing today at $48.50 per share, the market cap of the company is a little less than $91 billion with 1.87 billion shares outstanding. Here is why I think the valuation is currently undervalued: BUD - MO's 197.5 million shares are currently worth $20 billion. Even factoring in a $4 billion tax bill if there were to sell them, the holding is worth $16 billion. UST - Bought in 2009 for $10.4 billion, with a nearly 60% increase in operating earnings since then, I would estimate UST's value to be at least $17 billion. John Middleton cigars - Bought in 2008 for $2.9 billion, I would estimate its value is currently worth about $5 billion. Ste. Michele wine - With current struggles, probably worth about $1 billion. JUUL - Likely worth at least the $12.8 billion they recently paid for it. CRON - At market, their shares are worth about $2 billion, a little more than the $1.8 billion they paid for it. Add those six fairly conservative valuations together, and you get $53.8 billion. Subtract that from the current $91 billion valuation, and that leaves the cigarette and IQOS remaining stub at around $37.2 billion. That seems very cheap, since cigarettes alone still deliver around $16 billion in annual revenue (after excise taxes), and over $8 billion in operating company income. Even after you subtract MO's $1.2 billion in annual interest on their debt, as well as general overhead and income taxes, you would have a bottom line profit of over $5 billion. That profit would be a PE of around 7 on that $37.2 billion valuation. I don't see any scenarios where the cigarette division, even excluding the value of IQOS, is worth only that. I have no idea when MO will come back into market favor, but with interest rates looking to now be stuck in a low 2-3% range for the longer term, I see significantly more upside than downside. |
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