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Why Altria Stock Lost 21% in the First Half of 2020

By Jeremy Bowman – Jul 3, 2020 at 9:35PM

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Problems with Juul continued to weigh on the Marlboro maker.

What happened

Shares of Altria Group (MO -1.41%) have gone up in smoke this year as the domestic Marlboro maker fell early in the year after it took another impairment on its Juul Labs stake and then got slammed by the coronavirus pandemic. According to data from S&P Global Market Intelligence, the stock has slipped 21% through the first six months of the year. 

As you can see from the chart below, the stock fell steadily through the first three months of 2020 and has been unable to recover those losses even as the broader market has bounced back.

MO Chart

MO data by YCharts.

So what

Altria began the year with Juul facing stiff headwinds as regulators sought to ban flavored e-cigarette pods, the latest setback for the once-promising cigarette disruptor, with the e-cigarette brand embroiled in a number of lawsuits at the state level.

In 2018, Altria invested $12.8 billion for a 35% stake in Juul, but that investment has lost billions. In its earnings report at the end of January, Altria recorded a $4.1 billion impairment on Juul, citing the number of legal cases against the company. It was the second impairment the tobacco company had taken on Juul and lowered the value of the stake to just $4.2 billion.  

Three cigarettes on top of a pile of tobacco.

Image source: Getty Images.

In February, the stock slipped as fears of the pandemic swept the market, squeezing valuations and posing a threat to Altria's factories and consumer spending due to stay-at-home orders. In fact, in March the company temporarily shut down operations at its principal production plant in Richmond, Virginia, after two employees contracted COVID-19, and it said its CEO would take a medical leave after he contracted the coronavirus.

While the broad market recovered after hitting a bottom on March 23, Altria continued to be mired in challenges around Juul. The Federal Trade Commission sued on April 1 to separate the two companies, and Juul said later in the month that it would lay off a third of its staff. Altria also withdrew its guidance for the year because of COVID-19, although its first-quarter results were better than expected.

Now what

While the Juul saga plays out, Altria looks like an appealing value play trading at a P/E less than 10 and currently paying an 8.5% dividend yield. The company's financial performance has only been modestly hurt by the pandemic, and tobacco is traditionally a defensive, recession-proof sector. Though issues around Juul could continue to weigh on the stock, the challenges from the coronavirus crisis now seem to be in the past.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Altria Group Stock Quote
Altria Group
$46.52 (-1.41%) $0.67

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