The maker of Marlboro cigarettes is getting slammed after Morgan Stanley downgraded the stock, citing 'harsh FDA regulatory objectives'

juulREUTERS/Ronen Zvulun

  • Altria was downgraded by Morgan Stanley on Monday, with analysts citing regulators threatening to supress the e-cigarette market.
  • The Food and Drug Administration on Friday reportedly threatened to pull all e-cigarette and vaping products off the market.
  • FDA commissioner Scott Gottlieb blamed rising youth-vaping rates on the increased availability of e-cigarette products and named the brand Juul as a top-vape choice among teenagers.
  • The commissioner's stand against e-cigarettes and Juul is bad news for Altria, which recently invested $12.8 billion into the company.
  • Watch Altria trade live.

The cigarette-maker Altria, which recently made a big investment in the e-cigarette space, fell 6.44% Tuesday after Morgan Stanley downgraded the stock, citing regulators' threatening to suppress on the e-cigarette market.

"Harsh FDA regulatory objectives" are putting Altria's business at risk, Morgan Stanley analyst Pamela Kaufman said in a note out on Tuesday. Kaufman downgraded Altria to "underweight" from "equal-weight" and slashed her price target by 17% to $45, near where shares are trading Tuesday.

Morgan Stanley's note came days after the head of the Food and Drug Administration reportedly threatened to pull all vaping products off the market if companies don't stop marketing such products to youth.

"I'll tell you this," FDA commissioner Scott Gottlieb said at a public hearing Friday in Silver Spring, Maryland, according to The Hill. "If the youth use continues to rise, and we see significant increases in use in 2019, on top of the dramatic rise in 2018, the entire category will face an existential threat."

Gottlieb blamed rising youth-vaping rates on the increased availability and convenience of e-cigarette products and named the brand Juul as a top-vape choice among teenagers.

The commissioner's stand against vape cigarettes and Juul brand is bad news for Altria, the maker of Marlboro cigarettes. In December, Altria announced a $12.8 billion investment into the e-cigarette startup Juul, good for a 35% stake. The deal values Juul at $38 billion, roughly twice the company's previous valuation. Altria also agreed to make its retail network available to Juul to help it reach adult smokers, with direct communications through cigarette-pack inserts and mailings to adult smokers via its databases.

"Altria's $12.8 billion investment came at an expensive valuation considering Juul's reduced financial visibility due to FDA flavor restrictions at retail and potential for more severe FDA regulation to come," Kaufman said.

In November, the FDA laid out a plan to ban the sale of flavored e-cigarettes like Juul in convenience stores, in order to prevent a new generation of nicotine addicts. It also said it was looking into new restrictions on ethanol cigarettes.

Altria was down 36% in the past year and are trading around $45.21 on Tuesday.

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