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Altria (MO) Poised on Solid Pricing, Growth in Low Risk Products

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Growing health concerns and regulatory barriers on cigarette consumption have led several tobacco companies to focus on expanding low-risk offerings. Altria Group, Inc. (MO - Free Report) has also been gaining from growth in its oral tobacco category and other reduced risk products (RRPs). Moreover, prudent pricing strategies are supporting the company’s top-line performance, as witnessed during fourth-quarter 2020. That said, let’s get a closer look at the factors supporting this well-known tobacco player.

Low Risk Products are Gaining Popularity

Altria is striving to boost presence in the RRPs arena. These products are being widely accepted owing to their less detrimental impacts on health. Notably, the marketing and technology sharing agreement between Altria and Philip Morris International Inc. (PM - Free Report) , pertaining to the sale of IQOS in the United States, is yielding.  IQOS is one of the leading RRPs in the industry. We note that the U.S. Food and Drug Administration (FDA) approved the marketing of IQOS and HeatSticks as Modified Risk Tobacco Products in July 2020. Also, the authorization from the FDA on sales of IQOS 3 is encouraging. Altria, through its subsidiary — Philip Morris USA, Inc. — is striving to make IQOS available across more stores in the United States.  We note that other tobacco companies such as Turning Point Brands, Inc. (TPB - Free Report) and British American Tobacco p.l.c. (BTI - Free Report) have been expanding their offerings in the low-risk tobacco space.

Apart from this, Altria has been undertaking efforts to expand oral tobacco offerings. The company through its subsidiary Helix Innovations, holds 80% stake in certain companies of Burger Group that is engaged in the commercialization of the oral tobacco-derived nicotine (TDN) pouch product — on! Notably, on! was sold in more than 78,000 stores by the end of the fourth quarter, up 40% from third-quarter levels. Management believes that on! is a worthwhile addition to Altria’s smokeless portfolio, as oral TDN products are gaining popularity in the United States owing to their low-risk claims. The company is also undertaking efforts to expand in the cannabis industry. Markedly, the company acquired stakes of the Canada-based cannabis company, Cronos Group.

Pricing Boosts Revenues

Strong pricing for tobacco products has been a significant upside for Altria. Though higher pricing might lead to possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases owing to the addictive quality of cigarettes. During fourth-quarter 2020, higher pricing boosted Altria’s revenues and adjusted operating companies’ income in the smokeable as well as oral tobacco product segments. This led to top-line growth of 4.9% on a year-over-year basis..

Wrapping Up

Altria expects 2021 cigarette industry volumes to be affected by factors like unemployment rates, cross-category movement, buying power, stay-at-home trends as well as the timing and breadth of the coronavirus vaccine, among others. In general, anti-tobacco campaigns and increased consumer awareness regarding the harmful impacts of tobacco consumption have been acting as limitations to cigarette sales. Considering such a scenario, Altria’s efforts to strengthen low-risk tobacco offerings look prudent.  Moreover, continued gains from pricing of tobacco products are likely to remain an upside for this Zacks Rank #3 (Hold) company

Shares of the company have gained 8.1% in the past three months compared with the industry’s rise of 7.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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