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Altria invested heavily in vaping. Will it still pan out?



Shares of Altria ( MO ) fell slightly Thursday. So did the stock of Philip Morris ( PM ) the tobacco company that owns the rights to sell Marlboro and other cigarette brands overseas.

An agreement would create an electronic cigarette and vaping giant. Philip Morris is the manufacturer of iQOS electronic cigarettes, which heat tobacco and still contain nicotine. Altria already has an agreement with Philip Morris to sell iQOS devices in the United States.

But the FDA's proposed plan, unveiled Wednesday by Health and Humanitarian Secretary Alex Azar, to temporarily ban e-cigarettes with non-tobacco flavor products like mint and menthol, could make a merger harder to swallow.

  Vaping crisis didn & # 39; t had to happen
Tougher regulations on e-cigarettes could come after well-publicized reports of health problems among people like guns.

The Centers for Disease Control and Prevention sent a strongly worded statement in support of the e-cig crash Wednesday.

"This is an important step in responding to the epidemic of using e-cigarettes among the country's youth, and will help protect them from a lifetime of nicotine addiction and associated health risk," says CDC Director Robert Redfield. for non-tobacco colored products is important to reverse this alarming epidemic. "

" We must do everything we can to reduce the use of e-cigarettes among secondary and high school students, "Redfield added.

Tobacco stock up in smoke?

Investors grow nervous about these new regulatory headwinds.

Jefferies analyst Owen Bennett cut its price targets for both Altria and Philip Morris on Thursday, citing concern that the FDA is taking a hard look at Juul use, especially among teenagers.

"There is growing public outrage around Juul and a desire for regulators to take some sort of action. They have been the subject of negative headline after negative headline for the past 18 months, "Bennett said in a report.

Concerns about a larger whim should prompt investors to wonder if the Philip Morris-Altria reunion will actually take place," Cowens Vivien Azer added in a report on Thursday.

Although Philip Morris is not planning to pay top dollar for Altria, a deal may no longer be viable, Azer noted.

"Why would Philip Morris himself want to sign an agreement without a premium when buying an asset with a scary basic outlook? "she said.

A spokesperson for Altria told CNN Business that" we agree that it is urgent to get started, and we look forward to reviewing guide. Reducing young people's use of e-vapor products is a top priority for Altria. "The company did not address what the FDA guidance means for a possible Philip Morris merger. Philip Morris was not immediately available for comment.

Concerns about Juul weakness that is exaggerated?

But one analyst is not too concerned that the possibility of stricter rules on minor arms will kill an Altria-Philip Morris agreement.

Bonnie Herzog of Wells Fargo Securities said In a report that raising minimum sales for e-cigarettes to 21 would be a smart idea that the tobacco industry is likely to support.

Herzog also noted that Juul already agreed to remove many flavorful products from stores in November last year.

  A sixth person died of vaping-related lung disease Here is what you need to know

And you have to believe that Altria still wants a merger to happen. Shares have gone down more than 10% this year, while Philip Morris's share increased 12% in 2019.

Altria is trying to adapt to a world where people do not smoke traditional tobacco as much. It bought its almost 35% stake in Juul last year for around $ 13 billion. Altria also owns a 45% stake in Canadian cannabis company Cronos ( CRON ) and it is a significant investor in beer giant Anheuser-Busch InBev ( BUD ) .

Stifel analyst Christopher Growe still argues that although there is a further breakdown of Juul, Altria may benefit from people potentially moving back to traditional tobacco cigarettes.

In other words, it may not be the worst thing in the world that Altria finally scales back on its vaping ambitions.

Alttia's Juul stake "has been viewed as a blessing or an albatross at any given time in the last nine months. We believe this value must be lower because of the increasing pressure, both legally and legally," Growe said in a report.

"We believe the headlines, if anything, are positive for Altria – further regulation of E-cigs is likely to support a stronger cigarette performance for the company that trumps any lost value in Juul ownership," Growe concluded.


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