The rise of vaping has revolutionized the tobacco sector, but there are already storm clouds emerging. Altria (NYSE:MO), one of the world’s largest tobacco producers, acquired a 35% stake in the American electronic cigarette company Juul in December 2018. The acquisition was valued at a whopping $12.8 billion.
Early grades for the acquisition were positive as sales for Juul have surged in recent years. However, new reports have emerged in the second half of 2019 which have highlighted the increase in vaping-related deaths. Over the last few months nine deaths have been tied to vaping and e-cigarettes, according to reporting from the New York Times.
In late September, Juul announced that CEO Kevin Burns would be replaced by K.C. Crosthwaite, who had been the chief growth officer at Altria. Juul went on to suspend all television, print, and digital ads and scale back on its lobbying efforts.
Several retailers, including Walmart, have moved to ban e-cigarettes from their stores. This month, Juul suspended online sales of fruit and dessert flavours for its e-cigarettes.
Shares of Altria have dropped 8% over the past three months as of close on October 21. The stock is now down 2.8% in 2019 so far. Altria is set to release its third quarter results before markets open on October 31.
The Juul setback has been damaging, but Altria has posted promising sales for its heated tobacco products.
The prime buy-the-dip opportunity at Altria has passed as shares have moved out of technically oversold territory and toward overbought levels, but I still like its value today. The stock boasts a favourable price-to-earnings ratio of 12.9 and a hefty 7.3% dividend yield.
