Packs Are Back: Smokers Return To Form

Shares of some big U.S. tobacco companies have been on the upswing recently, as smokers have generally opted for traditional cigarettes amid rampant, vaping-related health concerns.

Firms such as Marlboro-maker Philip Morris International (NYSE: PM) and Nat Sherman-producer Altria (NYSE: MO) have each seen their stock climb roughly 20% since their late September troughs.

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The climb in the companies’ respective share prices have been largely attributed to the averted merger proposal between Philip Morris and Altria, which has kept PM somewhat clean of the regulatory issues engulfing Altria’s investment in JUUL.

However, the firms’ stocks have also been helped by consumers steering away from e-cigarettes and back to more traditional, combustible products.

Strategists at Barclays, led by consumer analyst Guarav Jain, noted, for example, that U.S. cigarette industry volumes fell -4.5% for the four-week period ending November 2, citing data from Management Science Associates (MSA). The level, which compared to Nielsen’s reported -6.8% drop, prompted Barclays to tout the improvement as “the best print of the year.”

The last time U.S. cigarette volumes were better than -5% was in August 2018.    

Jain and his team also highlighted that the better results happened in October 2019, which is “notable,” given Altria had increased prices in that month for the third time to date this year.

The higher prices of cigarettes appear to reflect the 4.2% year-on-year cost increase of manufacturing cigarettes, according to the U.S. Bureau of Labor Statistics’ October Producer Price Index.

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Moreover, Barclays added that e-cigarette sales dropped to around 7% over the prior year –

the first print below 10% over the past three years.

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Indeed, the e-cigarette business has recently been taking a beating, as a growing number of states and local governments have enacted, or are considering enacting, various forms of bans in the wake of product-related illnesses.

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The author does not hold any positions in the financial instruments referenced in the materials provided.

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