Altria: Buying NJOY Would Likely Bring No Joy
(Preview) Company Update (MO US) (Buy)
Summary
Altria is reportedly in "advanced talks" to acquire #3 U.S. e-cigarette maker NJOY for $2.75bn. We see this as the wrong decision.
NJOY is a distant #3 in U.S. Vapor. Precedents elsewhere suggest it is unlikely to catch up, absent drastic regulatory intervention.
The rumoured price would represent 18x trailing sales, and Altria could be better off buying back its own shares or even buy out Juul.
Altria stock is still cheap with a 9.5x P/E and an 8.1% Dividend Yield, and we retain our Buy rating for now.
With shares at $46.54, we expect an exit price of $54 and a total return of 46% (16.4% annualized) by 2025 year-end.
Introduction
Altria is reportedly in “advanced talks” to acquire U.S. e-cigarette maker NJOY for $2.75bn, according to an article in the Wall Street Journal on Monday (February 27).
Altria’s share price has fallen by about 10% in the past year. The shares have generated a gain of just 20% (including dividends) in the three years since we upgraded our rating to Buy in Feb…