Berenberg Downgrades Altria (MO) to Hold
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Berenberg downgraded Altria (NYSE: MO) from Buy to Hold with a price target of $76.00 (from $74.00).
Analyst Jon Leinster comments "As US market leader in combustible cigarettes, Altria potentially has the most to lose from a widespread switch to vaping and/or heated tobacco products. The company has so far taken a measured approach to growth in the vaping segment – it mentioned that MarkTen was now in retailers, representing c55% of e-vapour retail volumes – and is now working on plans to commercialise the PMI product iQOS in the US. PMI has yet to apply for pre-market approval (PTMA) with the FDA but that is expected in Q1 2017 and the process ought to take around six months. Investors should note that iQOS heatsticks would be defined as “cigarettes” under current US regulations and would therefore, unless definitions are altered, be liable to Federal Excise Tax (FET), State Excise Tax (SET) and Master Settlement Agreement (MSA) payments – and indeed all tobacco regulations on that basis. Therefore presumably, under these conditions, it would have to be sold at a premium price in the US market. We believe too that if the FDA bans “fruit”, “sweet” and “botanical” e-liquid flavours then the vaping segment is likely to be severely curtailed since these flavour segments have driven much of its growth in recent years."
Shares of Altria closed at $71.45 yesterday.
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