SWMAY - Altria is a 'melting ice cube' Barclays says in downgrade to Sell-equivalent

Barclays analyst Gaurav Jain made no bones about calling Altria ( NYSE: MO ) a declining business on Wednesday.

Jain told clients that with limited exposure to next generation products,the overhang of JUUL litigation, increasing competition from Philip Morris ( PM ) as it teams up with Swedish Match ( OTCPK:SWMAY ), and falling sales in traditional tobacco leave a company deserving a much lower multiple than its peers. He explained that the company could very well cut full year guidance amid weak cigarette volumes and increasing margin pressure.

“We think Altria ( MO ) is in an even weaker position than Imperial Brands ( OTCQX:IMBBY ) and Japan Tobacco International ( OTCPK:JAPAY ),” Jain told clients. “We see Altria as a melting ice cube, i.e, entering a decline that will be hard to reverse, similar to newspapers, cable companies, and printers, so we believe it deserves a low multiple."

He added that any promotional activity at competitors, namely British American Tobacco ( BTI ) would not be easily replicated. Jain suggested that a cut in price on e-cigarettes by British American of just 5% would not be sustainable for Altria to copy and would lead to EBIT to “enter a sustained decline” should it attempt to do so.

Amid these considerations, Jain downgraded the stock to “Underweight” and lowered his price target by 32%, from $53 to $36.

Altria ( MO ) shares fell over 3% in Wednesday’s premarket trading after the pessimistic review.

Read more on the latest legal wrangling over JUUL products .

For further details see: