Market Overview

5 Theses Behind Citi's Controversial Tobacco Call

Share:
5 Theses Behind Citi's Controversial Tobacco Call
Related PM
As Price Languishes, Vetr Downgrades Altria Group
Philip Morris Upgraded By Vetr Following Rough Month
An Opportunity in the Tobacco Industry: ——nd Century Group (GuruFocus)

The decline in U.S. cigarette volumes is likely to be slower than current consensus expectations, with decelerating e-vapor volumes helping conventional cigarettes, Citi’s Adam Spielman said in a report. He added that the tax and regulatory environment is significantly “less threatening” in the US.

“We prefer the U.S. domestic stocks,” Spielman commented, while recommending the stocks of Altria Group Inc (NYSE: MO) and Reynolds American, Inc. (NYSE: RAI) over that of Philip Morris International Inc. (NYSE: PM).

Related Link: Citi Not Convinced By Philip Morris' iQos

Controversial Calls

“We believe we are different mainly because we believe the domestic stocks (MO and RAI) should trade at a premium to international (PM),” Spielman noted. He mentioned five reasons for this call:

  1. Earnings of Altria and Reynolds American are “inherently more predictable” than that of Philip Morris. This is because 100 percent of the latter’s earnings have exposure to currency fluctuations
  2. The U.S. tax and regulatory environment for tobacco is much more favorable that that outside the US
  3. U.S. volumes are expected to be better
  4. The profit potential of Philip Morris’ iQos product remains unproven
  5. The risk of negative surprises on litigation is currently higher for Philip Morris than it is for either Altria or Reynolds American

Ratings And Price Targets

The analyst has Buy ratings on Altria and Reynolds American, and a Neutral rating on Philip Morris. The price target for Altria is at $72, for Reynolds American at $57 and for Philip Morris at $106. “We have buys on both the domestic stocks, MO and RAI, but RAI is our preferred name,” Spielman commented.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!

Latest Ratings for PM

DateFirmActionFromTo
Aug 2017SBG SecuritiesUpgradesSellHold
Jul 2017Bank of AmericaMaintainsNeutral
May 2017PiperJaffrayInitiates Coverage OnOverweight

View More Analyst Ratings for PM
View the Latest Analyst Ratings

Posted-In: Adam Spielman CitiAnalyst Color Long Ideas Reiteration Top Stories Analyst Ratings Trading Ideas Best of Benzinga

 

Related Articles (MO + PM)

View Comments and Join the Discussion!
Loading...
Loading...