Cowen's Top Cigarette And Soda Stocks

A new report by Cowen focused on cigarette and soda stocks. With the major names in the two spaces already reporting Q1 earnings, analysts discussed their updated outlook for the stocks along with recent trends that investors should be watching.

Volume declines improving
In the tobacco space, volume declines have eased over the past nine months while pricing has picked up. Soda volumes remain in decline, although analysts note that trends have largely stabilized and dollar sales trends have been improving.

According to the report, price gap management was the key theme for soda and tobacco companies in Q1.

Improved cigarette pricing
Price increases in the low-end of the cigarette category have driven consumers toward high-end products, a move which analysts view as a sustainable trend. According to the report, recent market share gains in the industry have gone to leading brands, which control the entire premium tobacco category.

Soda companies taking different approaches
At The Coca-Cola Co KO, a climbing relative price premium has not affected the company’s market share gains. Dr Pepper Snapple Group Inc DPS has focused instead on increasing the company’s price discount relative to the rest of the category, a strategy which has also gained market share for the company.

Outlook
For the big tobacco names, Cowen rates the stock of Altria Group Inc MO Outperform and the stocks of Lorillard Inc LO and Reynolds American Inc RAI Market Perform.
For the big three soda names, Cowen has an Outperform rating on Pepsico Inc PEP and a Market Perform rating on Coca-Cola and Dr Pepper Snapple.