Altria Stock Is a Buy Despite Fewer Smokers, Jefferies Says

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Analyst Owen Bennett raised his price target on Altria to $58 from $40.

Mario Tama/Getty Images

Altria Group

stock is trading higher Friday following an upgrade from Jefferies, which argues that the tobacco giant is more resilient than the market realizes, even as traditional cigarette use declines.

Owen Bennett
raised his rating on Altria (ticker: MO) to Buy from Hold and his price target to $58 from $40.

With U.S. smokers increasingly turning to reduced-risk products or quitting altogether, some investors have been skeptical of how Altria will manage in this shifting landscape, given that the company is more geared to traditional combustible cigarettes. Yet Bennett believes that this overlooks catalysts in the company’s favor.

He argues that with its investments in vaping company Juul and cannabis firm

Cronos Group

(CRON), Altria has the ability to expand in these new growth areas—an opportunity that makes its valuation look less stretched.

In addition, there’s an ESG argument for Altria. As its legacy business declines more quickly, the amount of Altria’s business that will come from reduced-risk products will grow, reducing its overall negative impact on consumer health.

That argument looks more encouraging, Bennett writes, as recent data have pointed to an increasingly less-rocky rollout of the heat-not-burn product IQOS—developed by

Philip Morris International

(PM) and distributed by Altria in the U.S. In addition, he notes, there’s now less risk that Juul would need to be removed from the market, as the company could see the Food and Drug Administration approve its premarket tobacco product application in the coming months.

Altria is up 2.1%, at $51.25, in recent trading, while the

S&P 500

is up 0.6%. Altria shares are up 25% year to date and have risen 40% in the past year.

Write to Teresa Rivas at [email protected]

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