Shares of Altria Group (NYSE: MO) were up slightly in afternoon trade on Wednesday. The stock has dropped 18% over the past one year and is currently trading 26% below its 52-week high of $57.88.
The company seems to be having a hard time with its JUUL investment that has been plagued with impairments and losses due to the regulatory issues being faced by JUUL. In 2019, Altria recorded non-cash, pre-tax impairment charges of $8.6 billion on its JUUL investment, bringing the value of the investment to $4.2 billion as of December 31, 2019.
Although Altria appears to be in a weak spot right now, here
is why the company is likely to prevail and maybe see a pickup going forward. Altria’s
primary business will remain pretty much stable over the coming years as the
trend of cigarette smoking is not going to disappear overnight and the company
has a strong footing in the space.
Despite weakness in its smokeable products, the company’s
smokeless products are stable, thereby providing a cushion. In the fourth
quarter, revenues from smokeable products fell 2.7% while smokeless products
revenues rose 5.8%.
Secondly, Altria’s investment in cannabis company Cronos (NASDAQ: CRON) opens up vast opportunities in this rapidly-growing space. Cronos recorded an increase of over 200% in its revenues for the third quarter of 2019.
Also read: Altria Q4 2019 Earnings Conference Call Transcript
The company sold 3,142
kg of products in Canada, compared to 514 kg last year, helped by higher
cannabis production and the launch of the adult-use market in Canada. The
opportunities in the cannabis space are projected to increase vastly in Canada
as well as in the US going forward and Altria stands to benefit from this
trend.
Lastly, coming to
JUUL, the company holds the lion’s share of the US e-cigarette market and the
e-cigarette industry is not likely to die down so soon. According to data
from Technavio, JUUL held around 75% of the market share in the US
e-cigarette market in 2019.
The report states
that the global e-cigarette market is projected to increase by $38.4 billion
from 2019-2023. In this scenario, JUUL might not disappear from the scene
completely. The company is more likely to come back in a tightly-regulated and
closely-monitored environment.
Once the regulatory issues are over, JUUL’s performance is likely to stabilize and provide better returns to Altria. All in all, there is a good chance of things picking up for Altria in the not-too-distant future.