FDA Nicotine Crack-Down Will Take Several Years Before 'Any Tangible Regulatory Change' Takes Hold, Analyst Says
The U.S. Food and Drug Administration's policy shift on tobacco and nicotine regulation initially resulted in a 20-percent plunge in Altria Group Inc (NYSE: MO), the parent company of notable cigarette brands including Philip Morris.
Needless to say, the FDA's crackdown on nicotine products is a negative event for the industry as a whole. However, this doesn't spell the end for tobacco companies, analysts at UBS suggested in a research report. The firm's Stephen Powers maintains a Neutral rating on Altria's stock rating with a price target lowered from $78 to $72 as the regulatory change could result in "modest potential negatives."
In fact, the FDA's new policy on tobacco is the "bigger overhang" as it could evolve into incremental federal cigarette regulation — an event that was previously viewed as being unlikely, the analyst continued. As a result, Altria's longer-term growth assumptions are being called into question and a re-rating of the stock's multiple is justified, as has been the case in prior periods of regulatory scrutiny.
However, the FDA's new policy shift will be slow to implement and represents no near-term impacts to Altria's earnings per share, Powers added. Also, conversations with industry experts suggest that it will take several years before any tangible regulatory change on the industry takes hold.
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