Barclays analyst Gaurav Jain made no bones about calling Altria (NYSE:MO) a declining business on Wednesday.
Jain told clients that with limited exposure to next generation products, the overhang of JUUL litigation, increasing competition from Philip Morris (PM) as it teams up with Swedish Match (OTCPK:SWMAY), and falling sales in traditional tobacco leave a company deserving a much lower multiple than its peers. He explained that the company could very well cut full year guidance amid weak cigarette volumes and increasing margin pressure.
“We think Altria (MO) is in an even weaker position than Imperial Brands (OTCQX:IMBBY) and Japan Tobacco International (OTCPK:JAPAY),” Jain told clients. “We see Altria as a melting ice cube, i.e, entering a decline that will be hard to reverse, similar to newspapers, cable companies, and printers, so we believe it deserves a low multiple."
He added that any promotional activity at competitors, namely British American Tobacco (BTI) would not be easily replicated. Jain suggested that a cut in price on e-cigarettes by British American of just 5% would not be sustainable for Altria to copy and would lead to EBIT to “enter a sustained decline” should it attempt to do so.
Amid these considerations, Jain downgraded the stock to “Underweight” and lowered his price target by 32%, from $53 to $36.
Altria (MO) shares fell over 3% in Wednesday’s premarket trading after the pessimistic review.
Read more on the latest legal wrangling over JUUL products.