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Zacks Industry Outlook Highlights Philip Morris, Altria Group and 22nd Century
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For Immediate Release
Chicago, IL – June 22, 2023 – Today, Zacks Equity Research discusses Philip Morris International Inc. (PM - Free Report) , Altria Group, Inc. (MO - Free Report) and 22nd Century Group, Inc. (XXII - Free Report) .
Players in the Zacks Tobacco industry have been benefiting from their strong pricing power as smokers tend to absorb price increases due to the addictive quality of cigarettes. Strength in the smoke-free product arena amid consumers’ rising preference for the same has also been working well for players.
These upsides keep Philip Morris International Inc., Altria Group, Inc. and 22nd Century Group, Inc. well-positioned amid hurdles associated with cost inflation and low cigarette volumes.
About the Industry
The Zacks Tobacco industry includes companies that manufacture and sell cigarettes as well as tobacco and nicotine-based products, such as cigars, snuffs and oral tobacco. Some companies also offer RRPs, such as e-cigarettes, vaping and heat-not-burn variants. A few of the firms are engaged in making devices and attachments needed in vaping and heat-not-burn products.
Most products manufactured by the tobacco industry participants fall under the strict vigilance of the U.S. Food and Drug Administration (“FDA”) and are required to follow the permissible levels of nicotine in manufacturing. Players in this space sell products mostly through large retailers, distributors, convenience stores, drugstores, wholesalers and grocery chains. Additionally, some international tobacco firms operate in the country through subsidiaries.
4 Trends Shaping the Future of the Tobacco Industry
Robust Pricing Power:Industry participants have been benefiting from the solid pricing power of tobacco products, which also helps them make up for high taxes and sometimes lower cigarette sales volumes. 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. The high pricing of cigarettes has been supporting revenues and the operating income of players in the tobacco industry.
Smoke-Free Products Gain Prominence: Rising health consciousness and stern government regulations against cigarette smoking have pushed many consumers toward low-risk, reduced-risk products (RRPs). Compared to cigarettes, these products are claimed to be less detrimental to health due to their scientific composition and manner of use. Consumers are increasingly taking to such products to quit cigarettes.
Tobacco majors have been making investments to expand in this category, such as undertaking innovations to make these products user-friendly and energy-efficient. Companies have been witnessing substantial revenue growth in the RRPs or smoke-free product arena. The tobacco giant, Philip Morris, has been gearing up toward becoming a majority smoke-free company by 2025. We believe that strength in these products is likely to continue working well for industry participants, which have been undertaking business transformation toward the RRP space.
Stern Regulations: Cigarette volumes have been bearing the impacts of strict government regulations pertaining to sales, marketing and manufacturing. Such regulatory norms are imposed due to health hazards caused by the consumption of nicotine. Some guidelines issued by the FDA include the mandatory use of precautionary labels on cigarette packets and self-critical advertisements.
Moreover, campaigns against tobacco consumption have led to increased consumer awareness, which has resulted in lower smoking rates. Such headwinds, along with the rising health consciousness, have been adversely impacting cigarette sales volumes. Since cigarette sales account for the majority of revenues for companies in the tobacco industry, dwindling sales volumes in this category are a concern.
Cost Inflation: An overall inflationary cost scenario has been hurting the performance of many industry players. Companies are witnessing global inflationary pressures on the cost of sales (mainly hurting the combustible tobacco business), supply-chain hurdles and the overall inflation of operating costs. Increased costs associated with smoke-free product research, development and marketplace activities have also been hurting margins.
Zacks Industry Rank Indicates Strong Prospects
The Zacks Tobacco industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #114, which places it in the top 45% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since the beginning of January 2023, the industry’s earnings estimate for 2023 has increased 2.2%.
Let’s take a look at the industry’s performance and current valuation.
Industry vs. Broader Market
The Zacks Tobacco industry has underperformed the Zacks S&P 500 composite as well as the broader Zacks Consumer Staple sector over the past year.
The industry has declined 9.3% over this period against the broader sector’s growth of 5.5%. Meanwhile, the S&P 500 has risen 17.2% in the said time frame.
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing consumer staple stocks, the industry is currently trading at 9.85X compared with the S&P 500’s 19.54X and the sector’s 18.29X.
Over the past five years, the industry has traded as high as 14.4X, as low as 9.15X and at the median of 11.11X.
3 Tobacco Stocks to Keep a Close Eye On
Philip Morris International: This Zacks Rank #3 (Hold) company has been benefiting from its strong pricing power. A focus on expanding in the RRPs arena has also been working well for Philip Morris. The company is well-placed toward becoming a majority smoke-free company by 2025. Toward this end, the IQOS, a heat-not-burn device, counts among one of the leading RRPs in the industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for PM’s 2023 EPS has remained stable at $6.20 in the past 30 days. Shares of Philip Morris have declined 4.4% in the past year.
Altria Group: The company’s journey toward a smoke-free future is noteworthy, as part of which it offers oral tobacco, e-vapor and heated tobacco products. Altria’s investment in on! (a popular tobacco-derived nicotine (TDN) pouch product) has been yielding well in particular. The company is also benefiting from its robust pricing efforts. Management expects adjusted EPS growth of 1-4% in 2023. Markedly, this manufacturer, marketer and distributor of smokeable and oral tobacco products currently carries a Zacks Rank #3.
Altria’s shares have risen 4.8% in the past year. The Zacks Consensus Estimate for MO’s 2023 EPS has dropped by 1.4% to $4.99 over the past 30 days.
22nd Century Group: The plant biotechnology company is focused on technologies that change the nicotine level in tobacco plants and the cannabinoid level in hemp/cannabis plants. 22nd Century Group’s commitment to its goal of lowering smoking-related damages by offering reduced nicotine tobacco cigarettes has been yielding well. On its last earnings call, the Zacks Rank #3 company stated that it expects its sales to increase sequentially in every quarter going forward.
The Zacks Consensus Estimate for 22nd Century Group’s 2022 bottom line has been stable over the past 30 days. Shares of XXII have declined 77% in the past year.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Philip Morris, Altria Group and 22nd Century
For Immediate Release
Chicago, IL – June 22, 2023 – Today, Zacks Equity Research discusses Philip Morris International Inc. (PM - Free Report) , Altria Group, Inc. (MO - Free Report) and 22nd Century Group, Inc. (XXII - Free Report) .
Industry: Tobacco
Link: https://www.zacks.com/commentary/2110949/watch-these-3-tobacco-stocks-on-favorable-industry-trends
Players in the Zacks Tobacco industry have been benefiting from their strong pricing power as smokers tend to absorb price increases due to the addictive quality of cigarettes. Strength in the smoke-free product arena amid consumers’ rising preference for the same has also been working well for players.
These upsides keep Philip Morris International Inc., Altria Group, Inc. and 22nd Century Group, Inc. well-positioned amid hurdles associated with cost inflation and low cigarette volumes.
About the Industry
The Zacks Tobacco industry includes companies that manufacture and sell cigarettes as well as tobacco and nicotine-based products, such as cigars, snuffs and oral tobacco. Some companies also offer RRPs, such as e-cigarettes, vaping and heat-not-burn variants. A few of the firms are engaged in making devices and attachments needed in vaping and heat-not-burn products.
Most products manufactured by the tobacco industry participants fall under the strict vigilance of the U.S. Food and Drug Administration (“FDA”) and are required to follow the permissible levels of nicotine in manufacturing. Players in this space sell products mostly through large retailers, distributors, convenience stores, drugstores, wholesalers and grocery chains. Additionally, some international tobacco firms operate in the country through subsidiaries.
4 Trends Shaping the Future of the Tobacco Industry
Robust Pricing Power:Industry participants have been benefiting from the solid pricing power of tobacco products, which also helps them make up for high taxes and sometimes lower cigarette sales volumes. 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. The high pricing of cigarettes has been supporting revenues and the operating income of players in the tobacco industry.
Smoke-Free Products Gain Prominence: Rising health consciousness and stern government regulations against cigarette smoking have pushed many consumers toward low-risk, reduced-risk products (RRPs). Compared to cigarettes, these products are claimed to be less detrimental to health due to their scientific composition and manner of use. Consumers are increasingly taking to such products to quit cigarettes.
Tobacco majors have been making investments to expand in this category, such as undertaking innovations to make these products user-friendly and energy-efficient. Companies have been witnessing substantial revenue growth in the RRPs or smoke-free product arena. The tobacco giant, Philip Morris, has been gearing up toward becoming a majority smoke-free company by 2025. We believe that strength in these products is likely to continue working well for industry participants, which have been undertaking business transformation toward the RRP space.
Stern Regulations: Cigarette volumes have been bearing the impacts of strict government regulations pertaining to sales, marketing and manufacturing. Such regulatory norms are imposed due to health hazards caused by the consumption of nicotine. Some guidelines issued by the FDA include the mandatory use of precautionary labels on cigarette packets and self-critical advertisements.
Moreover, campaigns against tobacco consumption have led to increased consumer awareness, which has resulted in lower smoking rates. Such headwinds, along with the rising health consciousness, have been adversely impacting cigarette sales volumes. Since cigarette sales account for the majority of revenues for companies in the tobacco industry, dwindling sales volumes in this category are a concern.
Cost Inflation: An overall inflationary cost scenario has been hurting the performance of many industry players. Companies are witnessing global inflationary pressures on the cost of sales (mainly hurting the combustible tobacco business), supply-chain hurdles and the overall inflation of operating costs. Increased costs associated with smoke-free product research, development and marketplace activities have also been hurting margins.
Zacks Industry Rank Indicates Strong Prospects
The Zacks Tobacco industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #114, which places it in the top 45% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since the beginning of January 2023, the industry’s earnings estimate for 2023 has increased 2.2%.
Let’s take a look at the industry’s performance and current valuation.
Industry vs. Broader Market
The Zacks Tobacco industry has underperformed the Zacks S&P 500 composite as well as the broader Zacks Consumer Staple sector over the past year.
The industry has declined 9.3% over this period against the broader sector’s growth of 5.5%. Meanwhile, the S&P 500 has risen 17.2% in the said time frame.
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing consumer staple stocks, the industry is currently trading at 9.85X compared with the S&P 500’s 19.54X and the sector’s 18.29X.
Over the past five years, the industry has traded as high as 14.4X, as low as 9.15X and at the median of 11.11X.
3 Tobacco Stocks to Keep a Close Eye On
Philip Morris International: This Zacks Rank #3 (Hold) company has been benefiting from its strong pricing power. A focus on expanding in the RRPs arena has also been working well for Philip Morris. The company is well-placed toward becoming a majority smoke-free company by 2025. Toward this end, the IQOS, a heat-not-burn device, counts among one of the leading RRPs in the industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for PM’s 2023 EPS has remained stable at $6.20 in the past 30 days. Shares of Philip Morris have declined 4.4% in the past year.
Altria Group: The company’s journey toward a smoke-free future is noteworthy, as part of which it offers oral tobacco, e-vapor and heated tobacco products. Altria’s investment in on! (a popular tobacco-derived nicotine (TDN) pouch product) has been yielding well in particular. The company is also benefiting from its robust pricing efforts. Management expects adjusted EPS growth of 1-4% in 2023. Markedly, this manufacturer, marketer and distributor of smokeable and oral tobacco products currently carries a Zacks Rank #3.
Altria’s shares have risen 4.8% in the past year. The Zacks Consensus Estimate for MO’s 2023 EPS has dropped by 1.4% to $4.99 over the past 30 days.
22nd Century Group: The plant biotechnology company is focused on technologies that change the nicotine level in tobacco plants and the cannabinoid level in hemp/cannabis plants. 22nd Century Group’s commitment to its goal of lowering smoking-related damages by offering reduced nicotine tobacco cigarettes has been yielding well. On its last earnings call, the Zacks Rank #3 company stated that it expects its sales to increase sequentially in every quarter going forward.
The Zacks Consensus Estimate for 22nd Century Group’s 2022 bottom line has been stable over the past 30 days. Shares of XXII have declined 77% in the past year.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.