Altria and Kraft on the move

Posted Jan 31st 2007 11:40AM by Victor Schiller
Filed under: Major Movement, Altria Group (MO), Options, Kraft Foods'A' (KFT)

Altria Group (NYSE:MO) opened today at $87.54. So far today, the stock has hit a low of $84.45 and a high of $88.47. As of 10:47 this morning, MO was trading at $87.99, up $0.45 (0.51%) on extremely heavy volume.

After hitting a one year low of $68.36 on April 17, 2006, the stock worked its way up to a peak of $90.50 on January 11, 2007. This morning the company finally announced that is would spin off its 89% stake in Kraft Foods (NYSE: KFT). Kraft is trading at $34.34 down $0.49 (-1.41%) so far today. The technicals for Altria have been strong and S&P gives MO its highest 5 STAR (out of 5) strong buy rating with a current 12 month target price of $110.

For a bullish hedged play on Altria, I would consider a June covered call at the $90 level. There may even be a chance to pick up some of this stock's 3.9% annual dividend.

Vic Schiller is an analyst on the move at Investors Observer. DISCLOSURE NOTE: Mr. Schiller owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about.

Tags: KFT, MO

Print this

Reader Comments (Page 1 of 1)

1-31-2007 @ 12:07PM

javery said...

What do you think about the almost certain spin-off of the international business? Isn't this the real growth area of the business?

1-31-2007 @ 9:15PM

Capital Markets said...

Can someone explain to me some key issues surrounding MO's spinoff of Kraft. Stock is trading at $87.39 which is about where it was at time of official announcement. Let's say I own 1000 shares of MO, which if I understand correctly, means that I will receive in March, approximately 700 shares of Kraft, presumably at a price in the low 30's. It would seem I'm getting a free dividend of about $22,400 worth of stock. So why doesn't the price of MO reflect the dividend. I would think that the stock price would drop significantly just prior to the March spin-off date which would be roughly the same amount of the value of the stock. Otherwise, wouldn't a massive amount of investors start purchasing the stock in order to receive the benfit of the spinoff, thus driving the price up by around 32.00 into the 100's. I must be missing something here. Looking for an explanation.

Sincerely,
Confused

2-01-2007 @ 8:36AM

rtppotter said...

I AM INTERESTED ON THE ANSWER GIVEN ON THE QUESTION THAT (CONFUSED ON ALTRIA SPIN OFF HAS ASKED)

2-01-2007 @ 10:24AM

Victor Schiller said...

Yes, you are correct. The stock price of MO is going to suddenly drop and investors are going to get shares of Kraft. Overall it will be a wash (that is you are not going to be getting any big gifts out of it). The key to understanding this is the ex-dividend date. There are several dates involved around that time; but on the ex divided date the stock is doing to start trading without the dividend. Investors buy the stock after then are not going to get the Kraft stock and the value price of the MO stock will fall accordingly.

According to this link
http://biz.yahoo.com/ap/070131/altria_kraft.html?.v=13

"The distribution of Altria's 89 percent stake in Kraft to Altria'sshareholders will be made on March 30 to shareholders of record as of March 16. Altria will distribute about 0.7 of a share of Kraft for every one share of Altria. The exact ratio will be determined on the record date."

But... Be sure to check all of this wioth your broker...