Stifel Previews Tobacco Names Heading Into Q4 Earnings

On Friday, Stifel released its research summary highlighting select Tobacco companies heading into Q4 earnings and the firm's 2016 outlook. "Tobacco stocks outperformed Consumer Staples and the S&P 500 in the fourth quarter (+310bps). Tobacco stocks are trading at a 1 percent premium to Consumer Staples (95th percentile) and a 20 percent premium to the S&P 500 (95th percentile) due to the strong business fundamentals and dividend yields (4 percent average), Stifel commented. Stifel recommended for investors, Overweight Tobacco stocks. The firm has a Buy rating for both Altria Group Inc

and Philip Morris International Inc.

. "We estimate 10 percent EPS growth in 4Q with upside potential around a stronger volume performance in 4Q15 (again). We estimate EPS of $0.68 (+4 percent) for Altria," the firm noted. Shares of MO are currently trading down -1.68 percent on Friday.Altria Group has a market capitalization of $114.75 billion and a P/E ratio of 22.0493. The company has a one year low of $47.31 and a one year high of $61.74. The firm also forecasts that key markets such as Russia, EU, and the Philippines have been better than expected, with pricing expected to push over $2 billion (6 percent+) for Philip Morris International Inc.

driving profit growth. "We expect the recent momentum in the business to continue in 2016 – PM's volumes should be down 1 percent or so, pricing up 6 percent, heavy reduced risk product (RRP) investment, and operating profit up 9 percent (constant FX)," Stifel noted. Stifel estimates an EPS of $0.50 (+14 percent) for Reynolds American, Inc.

seeing the company's EPS as "in line" with consensus. "We maintain a positive bias to EPS due to the potential for stronger volumes and less robust E-vapor investments," the firm commented. "We are raising our estimate for volumes for 4Q15 to 0 percent given the strong retail takeaway in the quarter and continued improvement in economic conditions (gas prices in particular). Pricing remains robust including the November $0.07 per pack increase (narrow price gap still) and should contribute strongly to profits. Smokeless tobacco volumes are estimated to grow 5 percent and, in addition to pricing, profits should be up," the firm noted.