Why Altria Group Shareholders Have Something to Worry About

Altria Group (NYSE: MO) has enjoyed strong performance in its stock price recently, hitting levels last month that it hadn't seen since before it spun off its international operations into a separate company. Despite Altria's rewards to its shareholders, the tobacco company faces some major challenges that could hurt its business in the long run and bring down its share price. In particular, the following issues have the most potential to have a negative impact on Altria going forward, and investors need to understand the risks involved.

Altria has long been the leader of the U.S. tobacco market, but Reynolds American (NYSE: RAI) has made large advances in its competitive position. The buyout of Lorillard several years ago brought together the No. 2 and No. 3 players in domestic tobacco, leaving Reynolds a lot closer to Altria in terms of market share. In particular, the popularity of the Newport brand posed a true challenge to Marlboro once it had the full marketing power of Reynolds American behind it.

Now, British American Tobacco (NYSEMKT: BTI) intends to take full control of Reynolds American, creating a global powerhouse that will be able to take a unified worldwide approach toward marketing both its traditional cigarette products and its newer alternative-products portfolios. Altria hasn't made any substantive comments about the Reynolds-BAT merger, insisting that it already has strategies in place to deal with competitors. Nevertheless, it will be important for Altria to consider measured responses once the merger goes through to make sure that British American doesn't jeopardize Altria's leadership in domestic tobacco.

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Source: Fool.com