Home Alternative guide Morgan Stanley cuts MO stock price target. Here’s why.

Morgan Stanley cuts MO stock price target. Here’s why.

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Shares of Altria Group (NYSE:MO) are trading down more than 6% after receiving a downgrade from Morgan Stanley. Analyst Pamela Kaufman cut her rating for MO shares from “equal weight” to “underweight” and also lowered her price target from $54 to $50.

Kaufman cites rising gas prices as one of the reasons for the reduction in the price target. To date, the national average price for a gallon of gasoline is $4.96, up from $3.06 a year ago. The analyst explains:

“Historically, there has been a strong inverse relationship between gasoline prices and cigarette volumes…We expect cigarette consumption to decline as consumers seek savings, products sold at gas stations being particularly vulnerable.”

Meanwhile, by Philip Morris (NYSE:PM) the acquisition of Swedish game may cause competition problems for MO stock. After this purchase, Philip Morris will offer a range of alternative tobacco products such as ZYN and IQOS. Kaufman thinks Altria shareholders are “underestimating the risk” of the acquisition. Philip Morris will be able to enter the US market with its IQOS product in 2024.

On top of that, Altria was up more than 12% year-to-date before Morgan Stanley’s downgrade was released. As a result, Kaufman states that “the risk-reward ratio has been skewed to the downside given the combination of near-term fundamental pressures and our longer-term concerns about MO’s cigarette portfolio.”

With Kaufman’s bearish view in mind, let’s take a look at how other analysts view the $90 billion tobacco company.

Analysts weigh in on MO Stock

  • Goldman Sachs has a price target of $100. Analyst Bonnie Herzog views MO stock as an attractive investment due to its strong free cash flow, stable margins and dividend yield. The analyst prefers him to Philip Morris and thinks the company will cut its earnings per share forecast for fiscal 2022 due to the Russian invasion of Ukraine and currency headwinds. Additionally, IQOS acquisition rates could suffer due to semiconductor shortages.
  • RBC Capital has a target price of $53. Analyst Nik Modi cites the company’s strong performance since December and believes there is limited room for improvement. Like Kaufman, Modi notes that rising gasoline prices can reduce consumer spending on tobacco products.
  • Finally, Altria has an average price target of $56.83 among 16 companies covering the business.

At the date of publication, Eddie Pan did not hold (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.