While struggle with weak cigarette sales is likely to continue for players in the
Tobacco industry, prospects for reduced risk products (RRPs) look encouraging. These next-generation tobacco products have been gaining immense popularity, as they are claimed to be less detrimental to health owing to their scientific composition and the manner of use. In fact, consumers are increasingly taking to such products to quit cigarettes. We note that cigarette sales volumes are being affected by strict government regulations levied on sales, marketing and manufacturing of such items. Moreover, campaigns against tobacco consumption have increased awareness among consumers, which is leading to lower smoking rates. Also, soft duty-free business stemming from reduced traveling amid the COVID-19 pandemic is denting cigarette sales volumes. Coming back to low-risk tobacco alternatives, we note that tobacco biggies have been witnessing substantial revenue growth in this arena. In fact, companies are making substantial investments to expand in this category by undertaking innovations to make these products user friendly and energy efficient. Markedly, the Food and Drug Administration (FDA) is keeping a close tab on the manufacturing and marketing of such items to regulate its usage among the youth. Also, strong pricing is helping a number of tobacco companies to stay afloat. As smokers don’t mind a price hike due to their addiction, this strategy is likely to keep working for players in the tobacco space. Evidently, high pricing for cigarettes has been supporting revenues and operating income for some of the players in the tobacco industry. Also, pricing power is helping tobacco companies make up for high taxes. We note that the Zacks Tobacco industry is housed within the broader Zacks Consumer Staples sector. The industry has gained 22.7% in the past year compared with the S&P 500’s rise of 40.6%. Meanwhile, the broader sector has moved up 24.2% in the said time frame. Industry Price Performance Image Source: Zacks Investment Research 3 Stocks In Focus
We are highlighting three companies from the Zacks Tobacco industry that are gaining from strong pricing, while some are being applauded for their endeavors to expand in the low-risk products arena.
First on our list is Vector Group Ltd. ( VGR Quick Quote VGR - Free Report) . This Florida-based company is engaged in manufacturing and selling cigarettes in the United States. Some of the renowned cigarette brands of the company are Liggett, Pyramid and Grand Prix. During first-quarter 2021, the company gained from growth in operating income in its tobacco business. Moreover, higher pricing acted as an upside for the Liggett brand. This Zacks Rank #2 (Buy) company continues to undertake prudent strategies to expand its tobacco market share and distribution capabilities. Markedly, the Zacks Consensus Estimate for 2021 earnings has remained stable in the past 30 days. Impressively, the stock has rallied 21.9% in a year. You can see . the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here Price Performance Image Source: Zacks Investment Research Philip Morris International Inc. ( PM Quick Quote PM - Free Report) is one of the industry pioneers in driving the shift from cigarettes to RRPs. Markedly, the company’s IQOS is one of the leading RRPs globally. Total users of IQOS as of the end of first-quarter 2021 were estimated to be about 19.1 million. The company is committed toward expanding these products to more markets. Moreover, this Zacks Rank #3 (Hold) company has long been benefiting from its strong pricing for tobacco products, which has aided revenues and adjusted operating income even in the face of an unfavorable tax environment and declining cigarette volumes. Notably, the Zacks Consensus Estimate for 2021 earnings has moved up 0.2% in the past 30 days. Shares of this well-known tobacco products company have surged 36.9% in the past year. Altria Group, Inc. ( MO Quick Quote MO - Free Report) is another potential pick. The company has a robust portfolio of cigarettes, RRPs and oral tobacco products. It has also undertaken efforts to expand in the cannabis industry. The marketing and technology sharing agreement between Altria and Philip Morris, pertaining to the sale of IQOS in the United States has been yielding results. Apart from this, the company’s HeatSticks has been performing well. This tobacco biggie, with a Zacks Rank #3, is on track with the expansion of its oral tobacco products. The company, through its subsidiary Helix Innovations, has full global ownership of on! — a popular tobacco-derived nicotine (TDN) pouch product. Apart from these, consistent gains from higher pricing have been supporting the company revenues. Notably, the Zacks Consensus Estimate for 2021 earnings has remained stable in the past 30 days. The stock has gained 23.2% in a year. Bitcoin, Like the Internet Itself, Could Change Everything
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