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Barclays Downgrades Altria, Worries about Declining Market Share

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Today, Gaurav Jain of Barclays downgraded Altria Group (NYSE:MO) from “overweight” to “equal weight,” according to a report from The Fly. He also lowered his target price from $50 to $43. The new target price represents a 12-month return potential of 7.7% from the closing price of $39.94 on Tuesday. 

In his research note, Jain stated that Altria only has exposure to the US markets. As a result, Altria has been losing its market share. Jain increased his total cigarette shipment expectations in the US for this year to a decline of 3%. However, he expects the industry in the US to witness a decline of 4% after 2020. 

Other analysts’ recommendations for Altria Group

UBS raised its target price from $30 to $40. Since Altria reported its first-quarter earnings on April 30, Jefferies and Cowen have raised their target prices. However, Stifel cut its target price from $56 to $52. Overall, analysts’ consensus target price was $48.14, which represents a 12-month return potential of 20.5%. Meanwhile, Wall Street is bullish on Altria. Among the 15 analysts, 60% recommend a “buy,” while 40% recommend a “hold.” None of the analysts recommend a “sell.”

Stock performance

Despite Barclays’ downgrade, Altria was trading 0.2% higher as of 10:23 AM ET. The strong broader equity market after yesterday’s sell-off led to a rise in the company’s stock price. On Tuesday, Philip Morris (NYSE:PM) received approval from the FDA to market its IQOS as a modified risk tobacco product. 

The company can market the product as being less harmful compared to cigarettes. So, investors hope that the approval could boost IQOS sales. Philip Morris has licensed Altria to market the product in the US. The optimism might have led to a rise in Altria’s stock price. 

Altria has lost 20% of its stock value YTD as of Tuesday. The company’s investments in JUUL and Cronos Group (NASDAQ:CRON) have been putting pressure on its stock price. With vaping-related diseases and vaping reaching higher proportions among young people, many states have banned flavored or all e-vapor products. 

Also, JUUL has several legal cases pending, while Altria’s management expects the cases to rise. Altria’s impressive first-quarter performance has mitigated the downside. The company has underperformed Philip Morris and the S&P 500 Index YTD. 

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