Why Altria Stock Slumped on Wednesday

Source The Motley Fool

Altria Group (NYSE: MO) stock was as popular as a used cigarette on Wednesday. The veteran tobacco company saw its share price wither by nearly 3% on the back of a U.S. Supreme Court ruling that hardly does it any favors. The stock's decline contrasted with the trajectory of the S&P 500 (SNPINDEX: ^GSPC), which posted an increase of 0.7% on the day.

The top court in the land rules

On Wednesday, the Supreme Court handed down a ruling in a case involving flavored vapes sold by companies like Altria. The judges reversed an appeals court decision that the Food and Drug Administration (FDA) had acted unlawfully when it rejected applications from two makers of such goods (privately held Triton Distribution and Vapetasia) for their products.

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That appeals court judgment asserted that the FDA violated the law when it changed the rules in the midst of the approvals process for the flavored vapes at issue. The agency appealed that ruling; hence the Supreme Court review. With the latter court's decision, the case will be sent back to the appeals court for further review.

While Altria is not one of the businesses involved in the case, it indisputably has a vested interest in the outcome. With the long-tail, secular decline in consumption of traditional cigarettes, it and other tobacco companies have pinned their hopes on next-generation products like vapes. A win for the FDA in its regulatory process dims such hopes somewhat.

A surmountable hurdle, but...

Regardless of how the FDA conducts its activities, flavored vapes will still make their way to consumers. Altria management has years of expertise threading regulatory needles, and it will adjust to this latest development. Still, current trends aren't in the company's favor, and despite a famously generous high-yield dividend, it might be a stock best avoided these days.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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