Altria's Bet on E-Cigarettes Is Burning Its Stock -- Update
September 19 2019 - 4:57PM
Dow Jones News
By Akane Otani
America's biggest tobacco company is being burned by its
investment in e-cigarettes.
Altria Group Inc. shares have tumbled 19% in 2019 to a roughly
five-year low, with selling accelerating in recent weeks after
health officials and politicians stepped up scrutiny of e-cigarette
device Juul.
That is even as the broader market has rallied, with the S&P
500 up 20% and within striking distance of a record.
The slide shows how Altria's $12.8 billion investment in Juul
Labs Inc. -- which the company touted as a way for it to tap into a
rapidly growing market while offsetting the broader decline in
traditional smokers -- hasn't worked out exactly as it had
hoped.
Juul has been hit by a number of setbacks this year that have
put its future in doubt. President Trump has said he plans to ban
most vaping flavors because of growing health concerns; the Federal
Trade Commission is investigating whether Juul used influencers
with large social-media followings to appeal to minors; and sales
of the company's vaporizers were abruptly halted in China in
September.
Worries about the firm's potential merger with rival Philip
Morris International Inc. have also hurt the stock. Analysts have
raised questions since the two companies confirmed in late August
that they were discussing potentially reuniting, with Citigroup's
Adam Spielman saying in a note earlier this month that a deal might
only increase the combined firm's reliance on traditional nicotine
products at a time when cigarette use is declining.
One silver lining: after taking a hit, Altria's stock looks
relatively cheap. It is trading at around 9.1 times its expected
earnings over the next 12 months, well below its five-year average
of 17 times. And shareholders can expect to reap relatively hefty
dividends, too: Altria offers a dividend yield of around 8.2%,
according to FactSet, around four times that of the S&P
500.
Not that it is helping draw investors back in yet.
The regulatory outlook for vaping products looks riskier than
initially expected, said Piper Jaffray analyst Michael Lavery in a
note earlier in September. He's lowered his rating for the stock to
"neutral" from "overweight."
Write to Akane Otani at akane.otani@wsj.com
(END) Dow Jones Newswires
September 19, 2019 16:42 ET (20:42 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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