Tobacco stocks are down across the board today on news that Walmart (NYSE:WMT) will cease cigarette sales in some locations. A number of major cigarette makers are down today as a consequence of the bearish news.
So, what do you need to know about the Walmart news? And how will it affect tobacco companies?
Well, as per a Wall Street Journal report, the retail giant plans to end cigarette sales in some U.S. stores. Select stores in California, Florida, Arkansas and New Mexico have already removed cigarettes from shelves. Walmart released a statement detailing the logic behind the decision:
“We are always looking at ways to meet our customers’ needs while still operating an efficient business. As a result of our ongoing focus on the tobacco category, we have made the business decision to discontinue the sale of tobacco in select stores.”
Today’s news further reinforces Walmart’s recent interest in healthcare, not unlike CVS (NYSE:CVS), which ceased tobacco sales in 2014.
A number of major players in the tobacco space are down today as a result of the news.
Tobacco Stocks Fall on Walmart News
Altria (NYSE:MO), Philip Morris (NYSE:PM) and British American Tobacco (NYSE:BTI) are all in the red so far today, between 1% and 3%. That makes sense given the news. Walmart is the largest U.S. retail chain, and losing its business would mean a fairly sizable blow to tobacco companies. Estimates say that Walmart accounts for roughly 5% of the cigarette industry’s volume in sales.
Today’s news comes as the cigarette sector is experiencing divisive predictions from many analysts. Recently, RBC Capital Markets analyst Nik Modi downgraded Altria from “outperform” to “sector perform,” arguing the stock is likely overvalued given its 24% rise since December.
However, not everyone feels as bearish. Last week, Goldman Sachs upgraded Altria to “buy” from its previous “neutral” rating. Analyst Bonnie Herzog argued Altria is a low-risk investment and a high-margin investment given current international concerns.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
