After solid gains on Tuesday, Wall Street had hoped to see continued upward momentum from the stock market. Unfortunately, it’s been tough for investors to put together more than one day of gains, and the realization that a recession could be more likely is starting to affect market sentiment. The Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) gave up early gains to finish slightly lower.
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Bad news did hit a couple of well-known companies, though, and their shares fell much more sharply than the broader market. Altria Group (NYSE: MO) took a hit related to potential regulation that could invalidate a key strategy it has pursued for quite a while now, while Kohl’s (NYSE: KSS) might have to overcome the challenges of having a potential buyout bid come in lower than expected.
Will the FDA kill Altria’s Juul?
Shares of Altria Group were down 9% on Wednesday. The move lower came amid reports that the cigarette maker could have its e-cigarette business shut down by the U.S. Food and Drug Administration.
The Wall Street Journal reported that the FDA is looking to order Juul Labs, the e-cigarette giant in which Altria acquired a 35% stake, not to sell its e-cigarette products in the U.S. market. Despite efforts to make the vaping products less appealing to underage users through moves like taking certain flavored e-cigarettes off the market several years ago, it appears that regulators believe the harsher move is necessary to prevent teenagers from using the products.
For Juul’s part, it has argued that e-cigarettes have less harmful health impacts than traditional cigarettes. Indeed, the entire business model for tobacco companies like Philip Morris International (NYSE: PM) has involved pivoting away from combustible tobacco products toward alternatives like heated tobacco and e-cigarettes. An adverse FDA decision could throw cold water on that idea as a viable pivot away from a traditional cigarette industry that has been in secular decline for decades.
Juul would likely fight an FDA order imposing an outright ban, and that could give the company more time to come up with compelling arguments while continuing to operate. Nevertheless, with Altria having invested billions of dollars for its Juul stake, the existential threat to the e-cigarette company’s business isn’t something investors in the tobacco industry are taking lightly.
Kohl’s might have to take less
Shares of department store retailer Kohl’s also dropped almost 9% on Wednesday. The company is reportedly a takeover target, but investors expect a possible detail to carry a lower price if it goes through at all.
In late May, Kohl’s shares rose sharply on reports that it had received offers that were as rich as $62 per share. After that didn’t result in a clear deal, Franchise Group (NASDAQ: FRG) entered into exclusive negotiations with Kohl’s to try to hammer out a deal, which some had hoped would approach the $60 per share mark.
However, subsequent reports today suggested that Franchise Group is questioning whether Kohl’s is a good fit. That could prompt the would-be buyer to step away entirely, but some investors speculate that it could merely lead to Franchise Group cutting the price of an offer to closer to $50 per share.
Kohl’s shares traded above $60 as recently as late April, so a $50 offer would be a real slap in the face to long-term shareholders. Nevertheless, there’s no predicting whether Kohl’s board would accept an offer at that level if it came in, and the retail sector more broadly has seen some big hits as inflation spikes and inventory management issues abound.