Altria Group Inc. shares have been performing poorly since the end of last year, when the company (second-largest tobacco producer in the US) purchased a 35% stake in Juul Labs.
With increased pressure from federal health officials against Juul Labs throughout the year, the targeted company was issued with a warning letter back in September, ordering it to correct its marketing strategies immediately or face hefty fines and potential confiscation of its products.
The Food and Drug Administration (FDA) rules and regulations require any company to be given regulatory approval before promoting tobacco products as less detrimental than ordinary cigarettes.
John Hunter, a Senior Portfolio Manager with Agency Desk, LLC in New York stated that one of the main reasons for the recent decline in the value of Altria shares is the ongoing vaping investigation against its latest acquisition.
“The investment of close to $13 billion dollars for a stake in Juul Labs was a move viewed by market watchers as logical, mainly because of the general opinion that electronic cigarettes are less harmful in comparison to the traditional ones, something that has brought a spike in vaping despite the negative trend in consumption of regular cigarettes”, Hunter said.
Several prosecutors and lawmakers in the state of California have joined a long list of market regulators and officials in adding pressure on Juul Labs. However, despite the ongoing investigation, Hunter says that there is a chance this may blow over in time. “This isn’t the first time that companies involved in scandals have recovered in a time period shorter than expected.”
Despite the current circumstances, Altria shares are still trading at around $40 dollars per share, closing at $40.13 dollars per share last trading session (September 27th, 2019).
Looking forward, John Hunter expressed in a note last Friday that Juul Labs and the FDA announcement, which raised the prospect of further regulation of vaping, has played a significant role in the ending of merger talks between Philip Morris and Altria. Hunter also pointed out that we could soon be near a bottom price for Altria shares and that we may be getting closer to a bullish rating.