Group stock is edging lower on Wednesday, after a downgrade from Argus, which warns that the tobacco giant is facing multiple headwinds.
Analyst Kristina Ruggeri cut her rating on Altria (ticker: MO) to Hold from Buy, citing the declining value of the company’s investments outside of traditional tobacco, and the risk of increased government regulation for cigarettes.
While Altria and other tobacco peers have been moving to position themselves in the growing market for reduced-risk products and alternatives to traditional cigarettes, the company hasn’t seen as much success with its diversification efforts. Altria has a 45% stake in Canadian cannabis company
(CRON), which has seen mixed results in recent quarters.
Likewise, Ruggeri writes that the company’s investment in e-cigarette maker Juul Labs has declined in value.
However, more recent developments have been grabbing headlines and investor attention. Late last month, the Food and Drug Administration said it planned to ban menthol in cigarettes and was considering requiring lower nicotine content, to non-addictive levels. In addition, the White House may also raise excise taxes on cigarettes—as Ruggeri notes, these would apply to “products that comprise most of Altria’s revenue.”
That leads her to trim her full-year earnings-per-share estimate to $4.55 from $4.60, to the midpoint of management’s guidance, and lower her 2022 EPS estimate to $4.74 from $4.83. She believes the stock is fairly valued at recent levels.
Altria stock is down 0.2% to $47.76 in early trading. The shares are up 16.7% year to date, and up nearly 34% in the latest 12 months.
In late April, Altria stock dropped after the company reported mixed first-quarter results, immediately following the government’s announcement of the menthol ban.
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