As of December 27, Altria Group (MO) was trading at $48.70—a fall of 21.8% since the announcement of its third-quarter earnings on October 25. The company is trading close to its 52-week low of $46.49. Altria is 32.8% lower than its 52-week high of $72.45.
Altria’s lower stock price
The rate of decline in the smoking population has accelerated in the last few years. Altria’s shipment volume of smokeable products has declined. To combat declining sales, Altria has divested its business by investing in Cronos Group, a Canadian cannabis company, and Juul, an e-cigarette company.
On December 7, Altria announced that it invested $1.8 billion in Cronos Group for a 45% stake in the company, which could increase 10% over the next four years with the warrant at a price of 19.00 Canadian dollar per share.
On December 20, Altria announced a $12.8 billion investment in Juul Labs for a 35% stake in the e-cigarette company. At a valuation of $38 billion, Juul Labs is one of the most valuable private companies. In July, Reuters reported that Juul was valued at ~$16 billion in the private funding round. Investors are concerned that Altria has paid more for the stake in Juul. The FDA is looking at restricting the sale of some flavored Juul products in convenience stores and gas stations to contain underage usage of e-cigarettes.
On November 15, the FDA announced that in its efforts to curb smoking among young people, the agency would advance rules to ban menthol-flavored cigarettes and cigars. Bloomberg estimated that menthol cigarettes account for 20% of Altria’s profits. The ban could dent Altria’s earnings significantly. All of these factors and weakness in the broader equity market led to a fall in Altria’s stock price.
YTD stock performance
Overall, 2018 was tough for tobacco companies. YTD (year-to-date), Altria stock has declined 31.8%. During the same period, Philip Morris International (PM) and British American Tobacco (BTI) have returned -36.9%, and -53.1%, respectively. The Consumer Staples Select Sector SPDR ETF’s (XLP) stock price, which has invested 12.0% of its portfolio in cigarettes and tobacco companies, has declined 11.1% YTD.
Next, we’ll discuss analysts’ recommendations.