Morgan Stanley Cuts MO Stock Price Target. Here’s Why.

  • Morgan Stanley analyst Pamela Kaufman lowered her Altria Group (MO) price target to $50.
  • The analyst also downgraded MO stock to "underweight."
  • Shares of MO stock are up more than 5% year-to-date.
MO stock - Morgan Stanley Cuts MO Stock Price Target. Here’s Why.

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Shares of Altria Group (NYSE:MO) are trading lower by over 6% after receiving a downgrade from Morgan Stanley. Analyst Pamela Kaufman reduced her rating for MO stock from “equal weight” to “underweight” and lowered her price target from $54 to $50 as well.

Kaufman cites rising gas prices as one of the reasons for the price target reduction. As of today, the national average price for a gallon of gas is $4.96 compared to $3.06 a year ago. The analyst explains:

“Historically, there has been a strong inverse relationship between gas prices and cigarette volumes … We anticipate lower cigarette consumption as consumers look for savings, with products sold at gas stations particularly vulnerable.”

Meanwhile, Philip Morris’s (NYSE:PM) acquisition of Swedish Match may pose competitive problems for MO stock. After this purchase, Philip Morris will offer a range of alternative tobacco products such as ZYN and IQOS. Kaufman believes Altria shareholders are “underappreciating the risk” of the acquisition. Philip Morris will be able to enter the U.S. market with its IQOS product in 2024.

On top of that, Altria was up more than 12% year-to-date before the Morgan Stanley downgrade was released. As a result, Kaufman states that “risk-reward skewed to the downside given the combination of near-term fundamental pressures and our longer-term concerns about MO’s cigarette portfolio.”

With Kaufman’s bearish view in mind, let’s take a look at how other analysts view the $90 billion tobacco company.

Analysts Chime in on MO Stock

  • Goldman Sachs has a price target of $100. Analyst Bonnie Herzog views MO stock as an attractive investment due to its strong free cash flows, stable margins and dividend yield. The analyst favors it over Philip Morris and believes the company will lower its fiscal 2022 earnings per share guidance due to the Russian invasion of Ukraine and foreign exchange headwinds. In addition, IQOS’s acquisition rates may suffer due to semiconductor shortages.
  • RBC Capital has a price target of $53. Analyst Nik Modi cites the company’s strong performance since December and believes that there is limited room for further upside. Like Kaufman, Modi notes that rising gas prices may lower consumer spending on tobacco products.
  • Finally, Altria has an average price target of $56.83 among 16 firms with coverage of the company.

On the date of publication, Eddie Pan 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 Publishing Guidelines.

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