Troubled e-cigarette maker Juul has dropped its internal valuation by 35% to approximately $13 billion, Bloomberg reports. The company cited public market volatility and new financial projections in the US and abroad.
Tobacco giant Altria Group (MO) snapped up 35% of Juul in 2018 for a whopping $12.8 billion. MO’s current valuation of its stake equates to a total valuation of Juul of approximately $12 billion.
Juul has been hit by litigation, lower-than-expected sales in Europe and rising regulatory pressure on the e-cigarette industry. For instance, in Europe the e-cigarette nicotine limit is capped at 20 milligrams per milliliter of fluid. That’s well under half the nicotine content of US Juul pods at 59 milligrams.
Buzzfeed recently reported that Juul plans to stop selling its e-cigarettes in five European countries, namely Austria, Belgium, Portugal, France, and Spain by the end of 2020. At the same time, the company will slash its 3,000-strong workforce by about a third.
In April the Federal Trade Commission filed an administrative complaint alleging that Altria and JUUL Labs alleging that MO dealt with the e-vapor competitive threat by agreeing not to compete in return for a substantial ownership interest in JUUL.
The administrative trial is scheduled to begin on Jan. 5, 2021.
“Altria has written down the value of JUUL twice, so investors likely already have low (if any) return expectations (viewed more as a future call option)” writes RBC Capital’s Nik Modi.
“While selling at a loss is a near-term negative, we think some investors will view this as a positive event (similar to when the FTC blocked EPC/Harry’s)” he commented.
Despite the JUUL troubles, Modi has a positive outlook on MO stock. He reiterated his Altria buy rating with a $68 price target following earnings, writing “A strong quarter with results ahead of even our bullish expectations.”
Overall Altria shows a Strong Buy Street consensus with an average analyst price target of $49. With shares down 26% year-to-date, the target indicates upside potential of 35%. (See MO stock analysis on TipRanks).
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