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Morgan Stanley weighed in on the implications of the FDA ordering Juul products off the market.

Analyst Pamela Kaufman said a JUUL marketing denial order could give MO the opportunity to terminate its noncompete, which MO can execute if JUUL comes off the market for over a year or if MO’s carrying value for JUUL falls below 10% of the initial $12.8B carrying value.

“From a valuation standpoint, we have not been ascribing much value to JUUL, which is worth $0.88 per MO share and have not baked in any EPS contribution from JUUL, but JUUL’s removal would have implications for MO’s terminal value. If unconstrained by the JUUL non-compete agreement, we would expect MO to step-up internal R&D investment behind e-vapor or acquire e-vapor technology, but the company would not be coming from a position of negotiating leverage.”

Kaufman noted there are a few larger scale independent e-vapor assets on the market that could attract the interest of MO.

Despite those options, an Underweight rating on MO was kept in place by Morgan Stanley as the potential legal challenges play out. Kaufman and team said that even though valuation has contracted from 8.7X the 2023 EV/EBITDA estimate to 7.2X on the core business, they do not see quite enough catalysts to make them positive on the stock.

The FDA ruling against Juul is seen as a positive for Philip Morris International (NYSE:PM), which may have the opportunity to enhance IQOS growth with Juul off the market. Philip Morris is noted to have approval for the IQOS HNB device and an application in for its e-cigarette VEEV.

British American Tobacco (BTI) is also seen as a key beneficiary if JUUL’s products are removed from the market. BAT is anticipated to further consolidate its leadership position in U.S. e-cigarettes.

Shares of Altria (MO) tracked up 0.34% premarket on Thursday after shedding 9.19% on Wednesday.

Read more about the FDA ruling on Juul.