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Altria (MO) investors got smoke in their eyes on Wednesday, seeing the shares shed 9% in the session. The decline came on account of a report stating the FDA is readying to order Juul to pull its vapor products off the market.
The tobacco giant best known as the seller of Marlboro cigarettes, acquired a 35% in Juul in 2018, which represents an important part of Altria’s reduced-risk product portfolio.
According to the reports, JUUL can appeal the decision, but in any case, the products will be taken off the shelves immediately. The company claims almost 26% of vapor market share and is second only to BAT’s Vuse products. All in all, vapor represents a high-single digit volume share of all the U.S.’s nicotine volume consumption, making it the biggest reduced-risk category in the U.S..
Juul, though, has been the target of lawsuits alleging false health assertions as well as claims that it was attempting to attract younger customers to vaping. However, Altria’s 35% percent stake in JUUL hasn’t contributed to its financial performance as the deal is still being investigated by the FTC.
Nevertheless, Stifel analyst Christopher Growe acknowledges the development could have long-term implications.
“We are surprised with the extent of the news — we expected flavor products to be banned (JUUL had already pulled them off the market), and potentially menthol, but we did not believe an outright banning of all JUUL products was likely,” Growe said. “Banning JUUL will not impact our earnings estimates, but we believe the risk to another long-term opportunity to participate in the reduced-risk product category in the U.S. is a clear negative for Altria.”
That said, there’s no change to Grower’s Buy rating while his $60 price target stays put too. The implication for investors? Upside of 43% from current levels. (To watch Growe’s track record, click here)
Growe, however, is amongst a minority on Wall Street; the stock has 12 recent analyst reviews, breaking down to 4 Buys, 7 Holds, and 1 Sell. The shares are selling for $41.89, and the average price target of $55.25 indicates a potential upside of ~32% over the next 12 months. (See Altria stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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