Market Overview

Tobacco's Big Week

Tobacco's Big Week
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The U.S. Food and Drug Administration is holding its Center for Tobacco Products meeting this week, and it could be a very important week for tobacco investors.

Height Securities analyst Stefanie Miller said Wednesday this week could mark the first steps in a decade-long transition in the tobacco industry.

“We think initial FDA actions on allowable nicotine levels in combustible cigarettes and other tobacco products will likely come at some point during 1Q2018 after yesterday's report by the National Academies provided Members of Congress concerned with the public health risks of tobacco products additional ammunition to force the FDA to release its long-awaited advanced notice of proposed rulemaking (ANPRM) on nicotine,” Miller said in a note.

She says Philip Morris International Inc. (NYSE: PM) could be one of the early winners if the FDA ramps up regulations because of the company’s new line of IQOS products.

Jefferies’ Take

Jefferies analyst Owen Bennett on Jan. 19 upgraded Philip Morris and Altria Group Inc (NYSE: MO) from Hold to Buy and said the shift to reduced-risk products and the potential for M&A in the space should drive stock outperformance among tobacco companies in 2018.

“Industry-wide catalysts include US CT guidance (suggestions not yet fully priced in, especially at MO; also sector-wide considerations of increased investment), the ANPRM on nicotine in the US (some downside likely; buy on the dip), Canadian litigation (concerns overdone but causing anxiety, especially at BAT), and possible heated tobacco approval in the US (big upside potential for first to market),” Bennett said.

Ratings And Targets

Tobacco investors will be watching to see how the FDA chooses to act this week as the tobacco companies try to stay relevant in profitable in an increasingly regulated market.

Jefferies has the following price targets and ratings for major tobacco stocks:

  • Altria-Buy rating, $81 target.
  • British American Tobacco PLC (ADR) (NYSE: BTI)-Buy rating, $80 target.
  • Philip Morris-Buy rating, $124 target.

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Latest Ratings for MO

Jan 2019Cowen & Co.DowngradesOutperformMarket Perform
Dec 2018CitigroupDowngradesNeutralSell
Dec 2018BarclaysInitiates Coverage OnOverweight

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