In particular, the suit suggests that MO dealt with the e-vapor competitive threat by agreeing not to compete in return for a substantial ownership interest in JUUL. Altria Group bought a 35% stake in vaping startup JUUL for $12.8 billion back in December 2018.
Following the news, RBC Capital’s Nik Modi commented “Altria has written down the value of JUUL twice, so investors likely already have low (if any) return expectations… While selling at a loss is a near-term negative, we think some investors will view this as a positive event.”
Should MO concede or the FTC win, precedent cases would suggest MO will have a designated amount of time to sell their stake back to JUUL or to an FTC approved buyer, writes Modi. He estimates MO’s 35% stake is worth about $2-4B at this point.
The administrative trial is scheduled to begin on Jan. 5, 2021, leading Modi to anticipate a “long drawn out process—if Altria decides to go to court.”
Overall analysts are cautiously optimistic about Altria’s outlook. The stock shows a Moderate Buy consensus on TipRanks with a $52 average analyst price target (37% upside potential). (See MO’s stock analysis on TipRanks)
“Altria’s core tobacco business (which generates all of the company’s profit) is performing well and cigarette volume declines are moderating, while pricing remains solid” Modi tells investors.
As a result he reiterated his Altria buy rating with a $68 price target.
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