Altria: New U.S. Tax Proposal Would Protect Cigarettes, Buy

(Preview) Company Update (MO US) (Buy)

Summary

• The latest U.S. budget proposal from House Democrats reinserted the "taxable nicotine" concept but left out other tobacco tax hikes.

• If passed, it would mean significant tax increases for e-vapor and nicotine pouches, but no change for cigarettes and moist snuff.

• The proposal would effectively protect U.S. cigarette sales. Altria would be a clear winner, while Swedish Match would be a clear loser.

• The likelihood of the proposal happening is reduced by Senator Joe Manchin's opposition. This is a low-probability, high-impact risk.

• We maintain our Buy rating on Altria, with an 8.0% Dividend Yield and a forecasted 21.0% annualized return, and on 3 other tobacco stocks

Introduction

We believe a new U.S. budget proposal released by House Democrats would protect cigarette sales and leave Altria a clear winner.

The U.S. Congress has been locked in budget negotiations for months, largely due to the Senate having just a single-seat Democratic majority (from the Vice President's breaking vote; t…