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MO

Altria Group

$65.24

-1.7 (-2.54%)

, PM

Philip Morris

$117.98

-0.53 (-0.45%)

12:32
07/31/17
07/31
12:32
07/31/17
12:32

Battleground: Analysts diverge on Altria takeover odds

Noting that the Food and Drug Administration's tobacco announcement was "very much in line" with industry expectations, RBC Capital analyst Nik Modi upgraded Altria Group (MO) to Sector Perform but pointed out he is not "buying the dip" given valuation and his belief that the company is not a takeout candidate in the near-term. Meanwhile, his peer at Wells Fargo argued that he still thinks the company is likely to be acquired. On Friday, the FDA had announced a comprehensive regulatory plan, under which it will pursue lowering nicotine in cigarettes to non-addictive levels. ON THE SIDELINES: In a research note to investors this morning, RBC Capital's Modi upgraded Altria Group to Sector Perform from Underperform, with a $62 price target. While the analyst believes the FDA announcement was a "shock to investors" based on how the tobacco stocks reacted, he suspects the news was "very much in line" with industry expectations. However, Modi noted that he is breaking with his long-held view to "buy the dips" not because of the announcement, but because he believes Altria is not a takeover candidate in the near-term, valuation is fair, and fundamentals are under pressure. Additionally, Modi said he is not going to make a leap of faith on the launch of iQOS in the U.S. market as there is limited visibility on a variety of factors. Nonetheless, the analyst said he thinks tobacco stocks can perform despite major overhangs. STILL SEES TAKEOVER: In a research note of her own, Wells Fargo analyst Bonnie Herzog told investors that she ultimately believes the FDA announcement could prove to be a positive for Altria. She argued that its terminal value is now higher as it benefits from consumption shifting to RRPs/iQOS, and the probability that Philipp Morris (PM) acquires the company remains high and timing could be soon given the multiple spread between the two is the widest it has been in over six years. Further, Herzog believes the FDA announcement may increase the value of Altria to "close to $90 per share" from $80 per share previously. While tobacco stocks could experience an "overhang in the near-term," the news "could be positive" for the sector over the longer term, as the analyst thinks the large tobacco companies will ultimately benefit from the change in consumption trends. The analyst reiterated an Outperform rating on Altria's shares, and encouraged long-term investors to buy the dip in since she thinks the selloff in the stock is overdone. PRICE ACTION: After falling 9.5% on Friday, shares of Altria have dropped another 3% to $65.12 in early afternoon trading today.

MO

Altria Group

$65.24

-1.7 (-2.54%)

PM

Philip Morris

$117.98

-0.53 (-0.45%)

MO Altria Group
$65.24

-1.7 (-2.54%)

07/31/17
RBCM
07/31/17
UPGRADE
RBCM
Sector Perform
Altria Group upgraded to Sector Perform from Underperform at RBC Capital
07/31/17
WELS
07/31/17
NO CHANGE
WELS
Altria Group still likely to be acquired after FDA news,says Wells Fargo
After the FDA announced a new approach towards nicotine Friday, Wells Fargo expects Altria (MO) to be "a big beneficiary" of the approach, since it will spur much higher purchases of reduced-risk products and smokeless cigarettes, leading to share gains for Altria, according to the firm. Wells believes that the FDA's announcement may increase the value of Altria to "close to $90 per share" from $80 per share previously, and it continues to expect the company to be acquired by Philip Morris (PM). Wells thinks that tobacco stocks could experience an "overhang in the near-term," but it says the news "could be positive" for the sector over the longer term, as it thinks the large tobacco companies will ultimately benefit from the change in consumption trends. British American Tobacco (BTI) is another publicly traded company in the sector.
07/31/17
07/31/17
UPGRADE
Target $62

Sector Perform
Altria Group upgraded to Sector Perform at RBC Capital
As previously reported, RBC Capital analyst Nik Modi upgraded Altria Group to Sector Perform from Underperform, as he believes the FDA's tobacco announcement on Friday was "very much in line" with industry expectations despite the surprise to investors. Modi, who still thinks tobacco stocks can perform despite major overhangs, keeps a $62 price target on Altria.
07/31/17
07/31/17
UPGRADE

On The Fly: Top five analyst upgrades
Catch up on today's top five analyst upgrades with this list compiled by The Fly: 1. Altria Group (MO) upgraded to Sector Perform from Underperform at RBC Capital with analyst Nik Modi saying he believes the FDA's tobacco announcement on Friday was "very much in line" with industry expectations despite the surprise to investors. 2. American Airlines (AAL) upgraded to Outperform from Market Perform at Cowen. 3. Baidu (BIDU) upgraded to Buy from Neutral at Nomura Instinet with analyst Jialong Shi-NIHK citing accelerating revenue momentum driven by news feed ads and an undervalued video business. 4. Wells Fargo (WFC) upgraded to Market Perform from Underperform at BMO Capital with analyst James Fotheringham citing valuation. The firm also ended its pair trade call of going long Citi (C) and short Wells Fargo. 5. GoPro (GPRO) upgraded to Equal Weight from Underweight at Morgan Stanley with analyst Yuuji Anderson saying valuation better reflects efforts to driver better product cycles through software improvements. This list is just a portion of The Fly's full analyst coverage. To see The Fly's full Street Research coverage, click here.
PM Philip Morris
$117.98

-0.53 (-0.45%)

07/28/17
COWN
07/28/17
NO CHANGE
COWN
Philip Morris least exposed to FDA loweirng nicotine levels, says Cowen
07/28/17
JEFF
07/28/17
NO CHANGE
JEFF
FDA plan could be positive for tobacco industry profit growth, says Jefferies
Jefferies analyst Owen Bennett said the FDA plan to pursue cutting nicotine in cigarettes is a positive for future profit growth, arguing it could lead to more favorable tax treatment and volume growth in vapor. However the key question will now be who is positioned to take advantage, he tells investors. Shares of tobacco product companies are sharply lower after the FDA announced its new proposal.
07/28/17
PIPR
07/28/17
NO CHANGE
Target $134
PIPR
Overweight
Philip Morris selloff a buying opportunity, says Piper Jaffray
Piper Jaffray analyst Michael Lavery views the selloff in shares of Philip Morris on the FDA's comments as a buying opportunity. Philip Morris, with no cigarette sales "whatsoever" in the U.S., is trading off in sympathy with the group, though today's news is likely net positive for the company, Lavery tells investors in a research note after the FDA announced intentions to reduce nicotine levels in cigarettes. He reiterates an Overweight rating on Philip Morris with a $134 price target

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