Altria Group Inc. (MO) and Philip Morris International Inc.’s (PM) stocks experienced a dip in premarket trade on Wednesday due to the impact of British American Tobacco’s (BAT) significant $31.5 billion writedown of its cigarette brands. BAT’s stock (BATS) also dropped by 8% in London following the announcement of the writedown, which evaluated the value of its acquired U.S. combustibles brands over a 30-year period. Among the U.S. brands owned by BAT are Camel and Newport. Both Altria and Philip Morris saw a decline of 1.3%.
Although BAT’s business is facing evident pressure, Jefferies analyst Owen Bennett presents reasons for not being overly negative. He highlights the potential upside for BAT from the U.S. market next year and the profitability of both its vape and pouch businesses, despite disposable pressures on the former. Additionally, Bennett believes that BAT’s focus on pricing versus below-the-line approaches has been misguided. Furthermore, there is a possibility of BAT selling part of its stake in the Imperial Tobacco Company of India (ITC), which could have implications for a potential buyback.
Overall, while BAT’s writedown has had a significant impact on the market, there remain elements offering potential for recovery and long-term success within the company’s portfolio.