Final Nail in the Coffin for Altria’s Juul Investment, but FDA Ban Has Little Impact on Our Valuation

The U.S. Food and Drug Administration, or FDA, may be about to drive the final nail into the coffin of Altria's investment in Juul Labs, after The Wall Street Journal reported on June 22 that the U.S. regulator is likely to order the removal of all remaining Juul products from the U.S. market. We have long been skeptics of Juul's outlook, and our $52 per share fair value estimate of Altria assumes Juul would barely be profitable throughout our forecast period. Therefore, the removal of Juul's contribution to Altria's earnings, which Altria reports as equity income, has no impact on our valuation. Although the 9% decline in the share price following the report seems like an overreaction, it probably reflects the deflation of optimistic assumptions around Juul and surprise at the blanket ban, as well as a reminder of the regulatory risk that accompanies investments in the tobacco sector. Our capital allocation rating of Altria remains Poor.