Potential No-Premium Deal Raises Questions On Altria's Outlook, This Analyst Moves Aside

Altria Group Inc MO is in talks with Philip Morris International Inc. PM for a merger with no premium.

The absence of a premium suggests that Altria’s underlying fundamentals and management's outlook for the company’s future may be worse than was earlier anticipated, according to Piper Jaffray.

The Analyst

Piper Jaffray’s Michael Lavery downgraded Altria Group to Neutral while reducing the price target from $64 to $49.

The Thesis

Although the terms of the deal are not known yet, the fact that Altria is considering a no-premium deal indicates an uncertain outlook for the company, Lavery said in the downgrade note.

On the other hand, the analyst mentioned that Altria’s vapor products are being subjected to growing scrutiny in the US and there is less confidence of JUUL being approved by the FTC (Federal Trade Commission) and FDA (Food and Drug Administration).

“We prefer more clarity from regulators before getting more bullish on the vapor outlook,” Lavery wrote, while adding that Altria had recently spent $13 billion on its JUUL stake.

If JUUL does not get FDA approval, the decline in cigarette volumes may moderate, Lavery said. He noted out, however, that before any potential benefit was realized, Altria's stock would first come under pressure on the negative FDA news.

Price Action

Shares of Altria Group were trading almost unchanged at $44.01 at the time of publishing on Tuesday morning.

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