Altria's Future Less Bumpy But Still Not Smooth
Despite its recent class-action victory in the highly publicized Engle case, Altria Group faces other legal hurdles that could weigh on the tobacco company's restructuring efforts, according to a recent report from Merrill Lynch.
On July 6, the Florida Supreme Court declined to reinstate a $145 billion in punitive damages against Altria (nyse: MO) that was awarded by a Florida jury in 2000 to plaintiffs suffering from smoking-related diseases. An appeals court had set aside the record award in 2003.
The Engle case had attracted worldwide media attention and the decision was seen as a major win for Altria, the parent company of Phillip Morris.
Since the Engle ruling, tobacco equities have risen 8% to 10%, according to Merrill Lynch.
But not all litigation risks are gone.
Big tobacco could face a series of complex individual claims to some extent different from those individual claims it has faced to date, said Christine Farkas, an analyst at Merrill Lynch.
The analyst said she "very much" doubts further appeals or individual claims will delay Altria's planned restructuring. Even so, until there is more clarity on what comes next, these potential scenarios do remain "important factors to be considered."
Farkas said she doesn't expect the company to announce a restructuring until more information emerges about a pending Department of Justice claim, in which a ruling "might emerge later this year, or it could take longer," she said.
Merrill Lynch maintained "buy" ratings on Altria and Carolina Group (nyse: CG), and a "neutral" rating on Reynolds American (nyse: RAI).
