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 MO and Philip Morris International Inc. PM. "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. PM 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. RAI 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.
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