On January 10, 2013, we reiterated our Neutral recommendation on Altria Inc. ( MO - Analyst Report ) following in-line third-quarter 2012 earnings results and the rising share of its flagship brand Marlboro.

Why the Reiteration?

Altria delivered adjusted earnings of $0.58 per share in the third quarter of 2012, which was in-line with the Zacks Consensus Estimate. The earnings exceeded the 56 cents reported in the year-ago quarter by 3.6%.

Total revenue was up 2.2% year over year to $6.2 billion in the third quarter 2012 on the back of strong revenue growth from smokeable products. Revenues net of excise taxes increased 3.2% to $4.5 billion for the period.

In the quarter, gross profit increased 1.6% from the year-ago quarter to $2.48 billion. Operating income increased 3.2% year over year to $1.99 billion.

Altria has a strong brand portfolio of tobacco and wine products. Its portfolio is enriched with popular names like Marlboro, Virginia Slims, Copenhagen, Skoal, Chateau Ste. Michelle and Columbia Crest.

Marlboro continues to provide an edge over competitors. Marlboro has maintained its major market share for several years as the company kept up a high level of innovation to suit consumer tastes and preferences.

Moreover, Altria enriches the brand with continuous innovations and aggressive promotions. Earlier in fiscal 2012, the company introduced Marlboro’s brand architecture that focused on the modern and innovative lines of The Marlboro Gold family, Marlboro Green family and Marlboro Black family. Moreover, Altria has many new projects for Marlboro in its pipeline. In 2013, Marlboro will expand its distribution of newer varieties like Marlboro Southern Cut and Marlboro NXT.

We are also encouraged by the company’s efforts to adapt to the evolving needs of consumers and develop less harmful non-combustible-nicotine-containing tobacco products. There has been a general shift of consumers to low risk and smokeless tobacco products.

However, we are concerned about the rising restrictions on tobacco companies by governments around the world that are taking measures to reduce smoking. This, in turn, is intensifying the decline in cigarette consumption across the world. The Food and Drug Administration (FDA) in America has passed a ruling that will compel tobacco companies to use scary labels on the cigarette packets to discourage customers from smoking.

Moreover, the unfavorable excise tax environment is inflating the prices of Altria’s premium brands. Higher taxes compel the company to raise prices, which eventually widens the price gap between premium and low-priced cigarettes.

Other Stocks to Consider

Currently, Altria has a Zacks Rank #2 (Buy). Other stocks worth a look are Reynolds American Inc. ( RAI - Analyst Report ) and Lorillard Company ( LO - Analyst Report ) , both of which carry a Zacks Rank #2 (Buy).