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Can Altria Battle Dwindling Cigarette Sales & Vaping Worries?

Zacks Equity Research

Altria Group, Inc. MO is treading on rough paths, thanks to adverse regulatory scenario for cigarettes and now for vaping products as well. The stock fell nearly 15% in the past three months compared with the industry’s decline of 6.4%. Nevertheless, higher pricing is expected to keep the company afloat amid the turmoil. Altria’s other expansion efforts are also encouraging. Let’s take a closer look.

Dreary Cigarettes Sales

Receding cigarette sales volumes, triggered by rising health awareness and FDA’s stern impositions, have long been an ailment for tobacco companies. For Altria, the damages are visible in its lackluster cigarette shipment volumes. While cigarette shipment volumes inched up a meagre 0.4% in the second quarter of 2019, it declined 14.3% year on year in the first quarter. Also, the metric fell 4.4%, 3.7%, 10.6% and 4.2% in the fourth, the third, the second and the first quarter of 2018, respectively.

Management now expects domestic cigarette industry volume to decline 5-6% in 2019 compared with the previously estimated fall of 4-5%. Other tobacco firms such as Philip Morris PM and British American Tobacco BTI are also reeling under pressures from such adversities.



Can Altria Pare Hurdles Related to RRPs?

Matters have also become unfavorable for reduced-risk products (RRPs) as China and India turn their back on e-cigarettes. India’s government recently announced intentions to put a ban on sales of all e-cigarettes on concerns of its popularity among teenagers. In fact, regulatory authorities in the United States are keeping a close tab on these products for curbing its usage among teenagers. Also, China has removed Juul Labs Inc.’s products from e-commerce websites. Markedly, Altria holds 35% stake in JUUL. In earlier developments, similar prohibitions on vaping products have been imposed by other nations that include Australia, Singapore and Brazil.  Such prohibitions are likely to dent RRPs sales.

Nevertheless, in several markets, such as in Europe, RRPs are considered to be a safer alternative to cigarettes. Altria is likely to keep gaining from such trends. Moreover, the FDA’s approval on the sale of IQOS devices in the United States is likely to be a boon for the company. Notably, Altria is in talks with Philip Morris to discuss the potentials of an all-stock merger. If at all the companies consider a merger, their shared goals pertaining to low-risk tobacco alternatives might receive a boost.

This apart, Altria has undertaken efforts to expand in the cannabis industry. It has acquired stakes of the Canadian cannabis company, Cronos Group CRON. Moreover, Altria has agreed to acquire 80% stake in Burger Group to commercialize the oral tobacco-derived nicotine (TDN) pouch product — on! These moves are likely to support Altria’s performance in the forthcoming periods. Moreover, higher pricing for smokeable and smokeless products are likely to favor this Zacks Rank #3 (Hold) stock.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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