Shares of tobacco company Altria Group, Inc. (NYSE: MO) declined 8.4% on Wednesday to close at $49.49 after Morgan Stanley (NYSE: MS) analyst Pamela Kaufman downgraded the rating on the stock to Sell from Hold and reduced the target price from $54 to $50 (1% upside potential).
The analyst’s bearish view is the result of increasing competition and gas prices.
In a research note, Kaufman said, “Historically, there has been a strong inverse relationship between gas prices and cigarette volumes. We anticipate lower cigarette consumption as consumers look for savings, with products sold at gas stations particularly vulnerable.”
Last month, Altria’s competitor, Philip Morris International (NYSE: PM) signed an agreement to acquire Stockholm-based tobacco firm Swedish Match.
According to the analyst, “The market is underappreciating the risk the deal poses to Altria, as it will allow Philip Morris to enter the U.S. market directly with (heated tobacco system) IQOS in 2024.”
Philip Morris is promoting IQOS as an alternative to traditional smoking.
Kaufman has a Sell rating on the stock. Overall, the stock has a Hold consensus rating based on four Buy, seven Holds and 1 Sell. MO’s average price target of $55.33 implies that the stock has upside potential of 11.8%.
Investors’ Stance
TipRanks’ Crowd Wisdom tool shows that investors currently have a Neutral stance on MO, as only 0.5% of investors on TipRanks increased their exposure to the stock over the past 30 days.
Conclusion
Kaufman’s rating downgrade reflects her concern that the company could face headwinds from the decline in demand for cigarettes and increased competition.
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