Philip Morris International Inc. (PM), Altria Group Inc (MO): This Global Tobacco Business is a Long Term Buy

Investors should notice that Altria Group Inc (NYSE:MO) also owns 26.9% of SABMiller plc (LON:SAB). Altria’s stake in SABMiller plc (LON:SAB) is worth more than $21.5 billion at the time of writing. Excluding the SABMiller stake, Altria’s smoking business is worth around $52.6 billion on the market. For the full year 2013, Altria has recently raised its EPS guidance, from a range of $2.49 – $2.55 to a range of $2.50 – $2.56 per share. Altria has also expanded its business into the electronic cigarette market. This August, its subsidiary Nu Mark will introduce MarkTen e-cigarettes into a lead market in Indiana.

Another giant tobacco group with large emerging market exposure

British American Tobacco PLC (ADR) (NYSEMKT:BTI), the owner of several leading cigarette brands including Dunhill, Kent, Pall Mall and Lucky Strike, has a higher valuation than Philip Morris. It is trading at $107.30 per share, with a total market cap of $103 billion. The market values the company at around 11.8 times its trailing EBITDA. British American Tobacco PLC (ADR) (NYSEMKT:BTI)’s main playground is the Asia Pacific region, with £4.2 ($6.4) billion, or 27.6% of the total 2012 revenue; meanwhile the U.S. and the Western European area delivered only £3.4 ($5.18) billion in sales.

Investors of British American Tobacco must be happy with its recent announcement to commence a share buyback program in July. Moreover, it also returned cash to investors via dividend payments. Income investors would love the company with its juicy dividend yield at 5.40%.

Among the three companies, Philip Morris employed the highest leverage ratio at 1.5 times net debt/EBITDA. Altria ranked second with a leverage ratio at 1.3. British American Tobacco has the lowest leverage ratio at around 1.23.

My Foolish take

Philip Morris, with a global leading position, significant emerging market exposure and reasonable financial leverage, is a long-term buy for patient investors. In addition to the 3.8% current dividend yield, Philip Morris will return much more cash to its investors via aggressive and consistent share buybacks. British American Tobacco is also a good cigarette long-term play, with a much higher dividend yield and growing Asia Pacific exposure.

The article This Global Tobacco Business is a Long Term Buy originally appeared on Fool.com and is written by Anh Hoang.

Anh HOANG has no position in any stocks mentioned. The Motley Fool owns shares of Philip Morris International. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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