Altria: teen-appeal of menthol vapes means Juul is no longer minted


Consumer staple stocks have been hot defensive properties lately on Wall Street. But gains can go up in smoke at the slightest whiff of a health-related crackdown. Altria, the $75bn company behind Marlboro cigarettes in the US, offers a stark reminder of this.

The Food and Drug Administration has banned the sale of Juul e-cigarette products in the US. The move means the start-up, once the envy of other cigarette groups, now has a doubtful future. Juul makes the bulk of its revenues in the US.

Juul’s fatal flaw was the popularity of its mint vapes with teenagers. Juul products therefore assumed the status as gateway drugs to cigarettes in the minds of some health officials.

Altria paid $12.8bn for a 35 per cent stake in Juul in 2018. It had already written down the value of its holding by $11.2bn to $1.6bn amid a political backlash and regulatory scrutiny. Shareholders can now expect the carrying value to plummet to zero.

The thornier question for Altria is what now? Juul was its big bet on alternative nicotine products. With its investment vaporised, Altria lags peers in the exodus from the declining cigarette market.

Altria still makes 90 per cent of its revenue from smokable products. It has only offset some of the volume decline with price increases. Meanwhile, regulations on tobacco products are tightening. The FDA may sharply curb nicotine levels.

Altria’s shares are down more than a fifth since May. They now trade on just 8 times forward earnings. That is less than half Philip Morris, which has a heated tobacco business and is buying chewing tobacco and nicotine pouch maker Swedish Match.

Even with Juul’s problems, Altria stock now looks cheap. It offers a dividend yield of 8.6 per cent compared to PMI at 5 per cent. A 10 per cent stake in Anheuser-Busch InBev, worth around $9bn, is another plus. For investors whose elastic ethics embrace carcinogens, a puff of Altria may calm nerves in the economic slowdown.

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