© Reuters. Altria (MO) Upgraded at Morgan Stanley on Price Dip, PT Lowered Following JUUL Ban
By Vlad Schepkov
Morgan Stanley analyst Pamela Kaufman upgraded Altria Group (NYSE:) to “Equal-weight” rating from “Underweight” citing recent underperformance and a more “balanced risk-reward” but cut the price target to $43 from $47 following the FDA’s ban on Juul’s line of products.
The analyst comments that despite persisting concerns over “MO’s fundamentals and long-term structural positioning”, the recent sharp pullback – the stock is down over 21% in June alone, vs an 8% drop in the – means “the market is more appropriately pricing in our concerns.”
She thus sees the current lower valuation, having contracted “from 8.6x to 7.3x NTM EV/EBITDA (11% below MO’s 3 year average,” as more compelling and offering a “more balanced risk-reward” – and cites the underperformance as a key reason behind rating upgrade.
The analyst also weighed in on by far the biggest issue surrounding the company in recent days – the FDA’s marketing denial order of the popular Juul line of products.
On that front, she notes that, unlike other companies who usually kept selling products while appealing denial orders, “JUUL may have a harder time remaining on the shelf given the FDA’s toxicological concerns and the agency’s indication that it may take enforcement action against retailers/distributors who continue to sell.”
To account for the risk, Morgan Stanley chose to “eliminate JUUL from our base case, reflect increasing investment needs behind RRPs, and greater long-term risk around MO’s growth outlook”, and lower the Price Target to $43 from $47.
Shares of MO closed at $42.51 yesterday, in line with the analyst’s expectations.
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