Why Altria Stock Is Sinking Today

Key Points

• Altria is losing ground after Jefferies published bearish coverage on the stock.

• Jefferies thinks Altria stock could slump to $50 per share over the next year.

• Altria has been scoring some wins with its smoke-free products, but declining cigarette unit volumes are still a significant risk factor.

• 10 stocks we like better than Altria Group ›

Altria Group (NYSE: MO) stock is seeing a significant pullback in Wednesday's trading despite positive momentum for the broader market. The tobacco giant's share price was down 4.1% as of 2:30 p.m. ET. Meanwhile, the S&P 500 was up 0.3%. The stock had been down as much as 4.5% earlier in trading.

Altria is getting hit with sell-offs today after Jefferies initiated coverage on the stock with a negative rating. Despite the pullback, Altria stock is still up roughly 24% over the last year.

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Altria stock slumps after Jefferies publishes bearish coverage

Before the market opened this morning, Jefferies published a note initiating coverage on Altria stock. Edward Mundy, the firm's lead analyst on the company, assigned an underperform rating on the stock and set a one-year price target of $50 per share. Mundy believes Altria's valuation has become stretched on the heels of its recent run-up. The analyst's price target implies potential downside of roughly 12.5% as of this writing.

What's next for Altria?

Altria is navigating what could be a secular decline for its smokable tobacco products. While the company has been able to offset declines in unit volumes for cigarettes with pricing increases, there has been a consistent decline in unit sales within the category in recent years.

The company is aiming to increase demand for smoke-free products and has actually been scoring some recent wins on that front recently, but it's not unreasonable to wonder whether the company's valuation may have become overstretched. Altria doesn't look obscenely overvalued, but it remains to be seen if positive momentum in smoke-free categories will continue and help to offset declines for cigarette unit sales. As of this writing, the company is valued at approximately 10.6 times this year's expected earnings -- and its stock pays a dividend yielding roughly 7.2%.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group. The Motley Fool has a disclosure policy.