Intrinsic value of Altria Group - MO

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$71.53

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$71.53

 
Intrinsic value

$42.58

 
Up/down potential

-40%

 
Rating

sell

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of MO stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 137.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  1.22
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  25,744
  26,259
  26,863
  27,553
  28,328
  29,187
  30,129
  31,156
  32,266
  33,463
  34,747
  36,121
  37,587
  39,148
  40,807
  42,567
  44,432
  46,407
  48,495
  50,702
  53,031
  55,489
  58,082
  60,814
  63,693
  66,725
  69,918
  73,278
  76,814
  80,535
  84,448
Variable operating expenses, $m
 
  17,845
  18,244
  18,699
  19,210
  19,777
  20,398
  21,075
  21,807
  22,596
  23,443
  23,821
  24,788
  25,817
  26,911
  28,072
  29,302
  30,604
  31,981
  33,436
  34,973
  36,594
  38,303
  40,105
  42,004
  44,003
  46,109
  48,325
  50,657
  53,110
  55,691
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  3,940
  17,845
  18,244
  18,699
  19,210
  19,777
  20,398
  21,075
  21,807
  22,596
  23,443
  23,821
  24,788
  25,817
  26,911
  28,072
  29,302
  30,604
  31,981
  33,436
  34,973
  36,594
  38,303
  40,105
  42,004
  44,003
  46,109
  48,325
  50,657
  53,110
  55,691
Operating income, $m
  21,804
  8,413
  8,619
  8,854
  9,118
  9,411
  9,731
  10,081
  10,459
  10,867
  11,304
  12,300
  12,799
  13,331
  13,896
  14,495
  15,131
  15,803
  16,514
  17,265
  18,059
  18,896
  19,779
  20,709
  21,689
  22,722
  23,809
  24,953
  26,158
  27,424
  28,757
EBITDA, $m
  22,008
  9,418
  9,635
  9,882
  10,160
  10,468
  10,806
  11,174
  11,573
  12,002
  12,462
  12,955
  13,481
  14,041
  14,636
  15,267
  15,936
  16,644
  17,393
  18,185
  19,020
  19,902
  20,832
  21,812
  22,844
  23,932
  25,077
  26,282
  27,550
  28,885
  30,288
Interest expense (income), $m
  775
  805
  845
  891
  942
  1,000
  1,064
  1,135
  1,212
  1,295
  1,384
  1,480
  1,583
  1,693
  1,809
  1,933
  2,065
  2,205
  2,352
  2,508
  2,673
  2,848
  3,031
  3,225
  3,430
  3,645
  3,872
  4,110
  4,362
  4,626
  4,904
Earnings before tax, $m
  21,852
  7,608
  7,774
  7,964
  8,176
  8,410
  8,667
  8,946
  9,247
  9,572
  9,920
  10,820
  11,216
  11,638
  12,087
  12,562
  13,065
  13,598
  14,162
  14,757
  15,385
  16,048
  16,747
  17,484
  18,260
  19,077
  19,937
  20,843
  21,796
  22,798
  23,852
Tax expense, $m
  7,608
  2,054
  2,099
  2,150
  2,207
  2,271
  2,340
  2,415
  2,497
  2,584
  2,678
  2,921
  3,028
  3,142
  3,263
  3,392
  3,528
  3,672
  3,824
  3,984
  4,154
  4,333
  4,522
  4,721
  4,930
  5,151
  5,383
  5,628
  5,885
  6,155
  6,440
Net income, $m
  14,239
  5,554
  5,675
  5,813
  5,968
  6,140
  6,327
  6,531
  6,751
  6,987
  7,241
  7,899
  8,188
  8,496
  8,823
  9,170
  9,538
  9,927
  10,338
  10,773
  11,231
  11,715
  12,225
  12,763
  13,330
  13,926
  14,554
  15,215
  15,911
  16,643
  17,412

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4,569
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  45,932
  42,217
  43,188
  44,298
  45,544
  46,925
  48,440
  50,089
  51,875
  53,799
  55,864
  58,072
  60,429
  62,939
  65,606
  68,436
  71,435
  74,609
  77,967
  81,514
  85,259
  89,211
  93,379
  97,772
  102,401
  107,276
  112,408
  117,811
  123,496
  129,477
  135,768
Adjusted assets (=assets-cash), $m
  41,363
  42,217
  43,188
  44,298
  45,544
  46,925
  48,440
  50,089
  51,875
  53,799
  55,864
  58,072
  60,429
  62,939
  65,606
  68,436
  71,435
  74,609
  77,967
  81,514
  85,259
  89,211
  93,379
  97,772
  102,401
  107,276
  112,408
  117,811
  123,496
  129,477
  135,768
Revenue / Adjusted assets
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
Average production assets, $m
  14,002
  14,285
  14,613
  14,989
  15,411
  15,878
  16,390
  16,949
  17,553
  18,204
  18,902
  19,650
  20,447
  21,296
  22,199
  23,156
  24,171
  25,245
  26,381
  27,582
  28,849
  30,186
  31,596
  33,083
  34,649
  36,299
  38,035
  39,863
  41,787
  43,811
  45,939
Working capital, $m
  -115
  -4,779
  -4,889
  -5,015
  -5,156
  -5,312
  -5,484
  -5,670
  -5,872
  -6,090
  -6,324
  -6,574
  -6,841
  -7,125
  -7,427
  -7,747
  -8,087
  -8,446
  -8,826
  -9,228
  -9,652
  -10,099
  -10,571
  -11,068
  -11,592
  -12,144
  -12,725
  -13,337
  -13,980
  -14,657
  -15,369
Total debt, $m
  13,881
  14,577
  15,356
  16,246
  17,245
  18,353
  19,568
  20,891
  22,323
  23,866
  25,522
  27,293
  29,183
  31,196
  33,335
  35,604
  38,010
  40,556
  43,248
  46,093
  49,097
  52,266
  55,609
  59,132
  62,844
  66,754
  70,871
  75,203
  79,763
  84,559
  89,605
Total liabilities, $m
  33,162
  33,858
  34,637
  35,527
  36,526
  37,634
  38,849
  40,172
  41,604
  43,147
  44,803
  46,574
  48,464
  50,477
  52,616
  54,885
  57,291
  59,837
  62,529
  65,374
  68,378
  71,547
  74,890
  78,413
  82,125
  86,035
  90,152
  94,484
  99,044
  103,840
  108,886
Total equity, $m
  12,770
  8,359
  8,551
  8,771
  9,018
  9,291
  9,591
  9,918
  10,271
  10,652
  11,061
  11,498
  11,965
  12,462
  12,990
  13,550
  14,144
  14,773
  15,437
  16,140
  16,881
  17,664
  18,489
  19,359
  20,275
  21,241
  22,257
  23,327
  24,452
  25,636
  26,882
Total liabilities and equity, $m
  45,932
  42,217
  43,188
  44,298
  45,544
  46,925
  48,440
  50,090
  51,875
  53,799
  55,864
  58,072
  60,429
  62,939
  65,606
  68,435
  71,435
  74,610
  77,966
  81,514
  85,259
  89,211
  93,379
  97,772
  102,400
  107,276
  112,409
  117,811
  123,496
  129,476
  135,768
Debt-to-equity ratio
  1.087
  1.740
  1.800
  1.850
  1.910
  1.980
  2.040
  2.110
  2.170
  2.240
  2.310
  2.370
  2.440
  2.500
  2.570
  2.630
  2.690
  2.750
  2.800
  2.860
  2.910
  2.960
  3.010
  3.050
  3.100
  3.140
  3.180
  3.220
  3.260
  3.300
  3.330
Adjusted equity ratio
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  14,239
  5,554
  5,675
  5,813
  5,968
  6,140
  6,327
  6,531
  6,751
  6,987
  7,241
  7,899
  8,188
  8,496
  8,823
  9,170
  9,538
  9,927
  10,338
  10,773
  11,231
  11,715
  12,225
  12,763
  13,330
  13,926
  14,554
  15,215
  15,911
  16,643
  17,412
Depreciation, amort., depletion, $m
  204
  1,005
  1,016
  1,028
  1,042
  1,058
  1,075
  1,093
  1,114
  1,135
  1,159
  655
  682
  710
  740
  772
  806
  842
  879
  919
  962
  1,006
  1,053
  1,103
  1,155
  1,210
  1,268
  1,329
  1,393
  1,460
  1,531
Funds from operations, $m
  3,007
  6,559
  6,690
  6,842
  7,011
  7,197
  7,402
  7,624
  7,864
  8,123
  8,400
  8,554
  8,870
  9,206
  9,563
  9,942
  10,344
  10,768
  11,217
  11,692
  12,193
  12,721
  13,279
  13,866
  14,485
  15,136
  15,822
  16,544
  17,304
  18,103
  18,944
Change in working capital, $m
  -784
  -94
  -110
  -126
  -141
  -156
  -172
  -187
  -202
  -218
  -234
  -250
  -267
  -284
  -302
  -320
  -340
  -359
  -380
  -402
  -424
  -447
  -472
  -497
  -524
  -552
  -581
  -612
  -644
  -677
  -712
Cash from operations, $m
  3,791
  6,644
  6,800
  6,967
  7,152
  7,354
  7,573
  7,811
  8,066
  8,341
  8,634
  8,804
  9,136
  9,490
  9,865
  10,262
  10,683
  11,128
  11,598
  12,094
  12,617
  13,169
  13,750
  14,363
  15,009
  15,688
  16,403
  17,156
  17,947
  18,780
  19,656
Maintenance CAPEX, $m
  0
  -467
  -476
  -487
  -500
  -514
  -529
  -546
  -565
  -585
  -607
  -630
  -655
  -682
  -710
  -740
  -772
  -806
  -842
  -879
  -919
  -962
  -1,006
  -1,053
  -1,103
  -1,155
  -1,210
  -1,268
  -1,329
  -1,393
  -1,460
New CAPEX, $m
  -189
  -283
  -329
  -376
  -422
  -467
  -513
  -558
  -604
  -651
  -699
  -747
  -798
  -849
  -902
  -958
  -1,015
  -1,074
  -1,136
  -1,200
  -1,267
  -1,337
  -1,410
  -1,486
  -1,566
  -1,650
  -1,737
  -1,828
  -1,924
  -2,024
  -2,129
Cash from investing activities, $m
  3,708
  -750
  -805
  -863
  -922
  -981
  -1,042
  -1,104
  -1,169
  -1,236
  -1,306
  -1,377
  -1,453
  -1,531
  -1,612
  -1,698
  -1,787
  -1,880
  -1,978
  -2,079
  -2,186
  -2,299
  -2,416
  -2,539
  -2,669
  -2,805
  -2,947
  -3,096
  -3,253
  -3,417
  -3,589
Free cash flow, $m
  7,499
  5,895
  5,996
  6,104
  6,230
  6,373
  6,531
  6,706
  6,897
  7,104
  7,328
  7,426
  7,684
  7,959
  8,253
  8,565
  8,896
  9,248
  9,620
  10,014
  10,430
  10,870
  11,334
  11,823
  12,340
  12,884
  13,456
  14,060
  14,695
  15,363
  16,067
Issuance/(repayment) of debt, $m
  1,043
  696
  779
  890
  999
  1,107
  1,215
  1,323
  1,432
  1,543
  1,656
  1,771
  1,890
  2,013
  2,139
  2,270
  2,405
  2,546
  2,692
  2,845
  3,004
  3,170
  3,343
  3,523
  3,712
  3,910
  4,116
  4,333
  4,559
  4,797
  5,045
Issuance/(repurchase) of shares, $m
  -1,030
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -787
  696
  779
  890
  999
  1,107
  1,215
  1,323
  1,432
  1,543
  1,656
  1,771
  1,890
  2,013
  2,139
  2,270
  2,405
  2,546
  2,692
  2,845
  3,004
  3,170
  3,343
  3,523
  3,712
  3,910
  4,116
  4,333
  4,559
  4,797
  5,045
Total cash flow (excl. dividends), $m
  6,712
  6,591
  6,774
  6,995
  7,230
  7,480
  7,746
  8,029
  8,329
  8,647
  8,984
  9,198
  9,574
  9,972
  10,392
  10,835
  11,302
  11,794
  12,313
  12,859
  13,434
  14,039
  14,676
  15,347
  16,052
  16,793
  17,573
  18,393
  19,254
  20,160
  21,112
Retained Cash Flow (-), $m
  -9,890
  -158
  -192
  -220
  -247
  -273
  -300
  -327
  -354
  -381
  -409
  -437
  -467
  -497
  -528
  -560
  -594
  -629
  -665
  -702
  -742
  -782
  -825
  -870
  -916
  -965
  -1,016
  -1,070
  -1,126
  -1,184
  -1,246
Prev. year cash balance distribution, $m
 
  4,569
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  11,002
  6,582
  6,775
  6,983
  7,207
  7,446
  7,703
  7,976
  8,266
  8,575
  8,760
  9,107
  9,475
  9,864
  10,274
  10,708
  11,165
  11,648
  12,156
  12,692
  13,257
  13,851
  14,477
  15,135
  15,828
  16,557
  17,323
  18,129
  18,976
  19,866
Discount rate, %
 
  5.20
  5.46
  5.73
  6.02
  6.32
  6.64
  6.97
  7.32
  7.68
  8.07
  8.47
  8.89
  9.34
  9.81
  10.30
  10.81
  11.35
  11.92
  12.51
  13.14
  13.80
  14.49
  15.21
  15.97
  16.77
  17.61
  18.49
  19.41
  20.38
  21.40
PV of cash for distribution, $m
 
  10,458
  5,918
  5,732
  5,527
  5,305
  5,064
  4,807
  4,533
  4,246
  3,948
  3,582
  3,276
  2,968
  2,663
  2,363
  2,072
  1,795
  1,535
  1,294
  1,075
  878
  706
  558
  432
  328
  244
  178
  126
  87
  59
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Altria Group, Inc., through its subsidiaries, manufactures and sells cigarettes, smokeless products, and wine in the United States. It offers cigarettes primarily under the Marlboro brand; cigars principally under the Black & Mild brand; and moist smokeless tobacco products under the Copenhagen and Skoal, Red Seal, and Husky brands. The company also produces and sells varietal and blended table wines, and sparkling wines under the Chateau Ste. Michelle, Columbia Crest, and 14 Hands names; and imports and markets Antinori, Torres, and Villa Maria Estate wines, as well as Champagne Nicolas Feuillatte in the United States. In addition, it provides finance leasing services primarily in aircraft, electric power, railcar, real estate, and manufacturing industries. The company sells its tobacco products primarily to wholesalers, including distributors; large retail organizations, such as chain stores; and the armed services. Altria Group, Inc. was founded in 1919 and is headquartered in Richmond, Virginia.

FINANCIAL RATIOS  of  Altria Group (MO)

Valuation Ratios
P/E Ratio 9.8
Price to Sales 5.4
Price to Book 10.9
Price to Tangible Book
Price to Cash Flow 36.7
Price to Free Cash Flow 38.6
Growth Rates
Sales Growth Rate 1.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -17.5%
Cap. Spend. - 3 Yr. Gr. Rate 7.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 108.7%
Total Debt to Equity 108.7%
Interest Coverage 29
Management Effectiveness
Return On Assets 38.1%
Ret/ On Assets - 3 Yr. Avg. 23.9%
Return On Total Capital 67.2%
Ret/ On T. Cap. - 3 Yr. Avg. 42.2%
Return On Equity 182%
Return On Equity - 3 Yr. Avg. 167.3%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 45%
Gross Margin - 3 Yr. Avg. 43.4%
EBITDA Margin 88.7%
EBITDA Margin - 3 Yr. Avg. 53.4%
Operating Margin 84.7%
Oper. Margin - 3 Yr. Avg. 49.2%
Pre-Tax Margin 84.9%
Pre-Tax Margin - 3 Yr. Avg. 49.4%
Net Profit Margin 55.3%
Net Profit Margin - 3 Yr. Avg. 32.2%
Effective Tax Rate 34.8%
Eff/ Tax Rate - 3 Yr. Avg. 34.9%
Payout Ratio 31.7%

MO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MO stock intrinsic value calculation we used $25744 million for the last fiscal year's total revenue generated by Altria Group. The default revenue input number comes from 2016 income statement of Altria Group. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our MO stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.2%, whose default value for MO is calculated based on our internal credit rating of Altria Group, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Altria Group.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of MO stock the variable cost ratio is equal to 68%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for MO stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.8% for Altria Group.

Corporate tax rate of 27% is the nominal tax rate for Altria Group. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the MO stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for MO are equal to 54.4%.

Life of production assets of 94.5 years is the average useful life of capital assets used in Altria Group operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for MO is equal to -18.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $12770 million for Altria Group - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 1922.43 million for Altria Group is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Altria Group at the current share price and the inputted number of shares is $137.5 billion.


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COMPANY NEWS

▶ Inside Altrias Margins in 1Q17: What the Analysts Expect   [Apr-27-17 10:38AM  Market Realist]
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▶ 15 Most Expensive Cigarette Brands In The World   [Apr-04-17 10:33AM  Insider Monkey]
▶ Philip Morris Files Product Application With FDA   [Apr-03-17 11:02AM  GuruFocus.com]
▶ Analysts Recommendations for MO, PM, and RAI   [09:06AM  Market Realist]
▶ The 3 Best E-Cigarette Stocks to Buy in 2017   [Mar-30-17 04:23PM  at Motley Fool]
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▶ Better Buy: Procter & Gamble Co vs. Altria Group Inc   [Mar-16-17 01:24PM  at Motley Fool]
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▶ 3 Incredibly Cheap Dividend Stocks   [Mar-11-17 10:15AM  at Motley Fool]
▶ Here's Why the Best Is Yet to Come for Altria Group   [Mar-06-17 11:07AM  at Motley Fool]
▶ Better Buy: Sturm, Ruger & Co. vs. Altria   [10:51AM  at Motley Fool]
▶ Better Buy: Philip Morris International vs. Altria   [Feb-22-17 10:49AM  at Motley Fool]
▶ The 1 Stock I'd Never Put in an IRA   [Feb-18-17 07:01PM  at Motley Fool]
▶ Will Philip Morris International Inc. Sink or Swim?   [Feb-16-17 01:19PM  at Motley Fool]
▶ Are You Ignoring Investment Risks You Know About?   [Feb-15-17 11:45AM  at Insider Monkey]
▶ Better Buy: Altria Group Inc. vs. Coca-Cola   [10:29AM  at Motley Fool]
▶ 20 stocks that will help you sleep at night   [11:09AM  at MarketWatch]
▶ What Reynolds American's Earnings Mean for Altria's Future   [Feb-10-17 09:47AM  at Motley Fool]
Stock chart of MO Financial statements of MO
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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