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Investment idea - Altria Group

We remain upbeat about the shares of Altria Group (MO), a US tobacco and cigarette company. The company continues to deliver double-digit growth. According to financial report for 2Q15, revenue rose 5.5% y-o-y, while EPS climbed 13.1%. Supplies of cigars increased 2.4% in the first half of FY15 due to growing market share of Marlboro, company's leading brand. Strong results of the first half of FY15 allowed Altria’s management to revise up its EPS forecast from USD 2.75-2.80 to USD 2.76-2.81.

Altria is friendly to its shareholders. The Board of Directors recently raised quarterly dividend by 8.7% to 56.5 cents, yielding 4.2%. Furthermore, the company continues to buy back its shares. Altria bought back 5.2 mn shares totaling USD 263 mn and announced a new buyback program worth USD 1 bn until end 2016.

In addition, Altria has an expanding footprint in the market of electronic cigarettes. The company’s brands MarkTen and Green Smoke are rather popular in this segment. Moreover, Altria has enlarged the scope of its strategic agreement with Philip Morris in July, and now the companies will collaborate to develop and promote products in this fast-growing segment.

Notably, Altria owns a 27% stake in the world’s second-largest beer producer SABMiller, which is currently being merged with another beer giant Anheuser-Busch InBev. The company’s stake in SABMiller is a non-core asset for Altria, and Anheuser-Busch’s interest in the company could be a good opportunity to dispose of it with maximum benefits. Altria could invest the proceeds from the deal into its own business or increase payouts to shareholders.

We raised our target share price for Altria to USD 63. The name offers an attractive mid-term investment opportunity, especially for investors who prefer shares with high-dividend yields. The short-term technical target is USD 60.