Deutsche Bank downgrades Altria on valuation, regulatory risks

Investing.com -- Deutsche Bank downgraded Altria Group (NYSE: MO) Inc to “Hold” from “Buy” citing limited upside following a strong year-to-date rally and ongoing regulatory challenges to its NJOY e-vapor business.

Altria shares have gained about 15% this year, outperforming the S&P 500 by roughly 20%.

The stock’s defensive cash flow and 7% dividend yield remain attractive, but Deutsche Bank believes the company’s current valuation of 11.3 times estimated 2025 earnings and 6.9 times enterprise value to EBITDA fairly reflects its prospects.

The firm maintained its $60 price target, implying only 2% upside.

Altria faces regulatory uncertainty after the U.S. International Trade Commission ( ITC (NSE:ITC)) ruled in January that its NJOY ACE e-vapor products infringe on patents owned by Juul Labs.

The ITC issued a Limited Exclusion Order and Cease and Desist Orders prohibiting Altria from importing or selling the infringing products until the patents expire in 2034 and 2037.

While Altria’s U.S. combustibles business continues to generate strong cash flow, Deutsche Bank noted near-term challenges in the segment, as well as a lack of visibility on the future of NJOY.

Altria has been raising cigarette prices to counteract declining volumes, which has led to its products being priced at a premium of over 20% compared to the market.

Despite these challenges, the company maintains gross profit margins of 70.13% and trades at an attractive P/E ratio of 9.15.

Given these factors, the firm believes the stock is fairly valued at current levels and sees limited near-term catalysts for further upside.

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