Big Tobacco Takes A Big Hit (MO) (PM) (BTI)
Zacks Investment Research | May 29, 2019 11:10PM ET
Since Friday, Altria Group Inc. (NYSE:MO) , Philip Morris International Inc. (NYSE:PM) , and British American Tobacco (LON:BATS) PLC (NYSE:BTI) have all fallen 5.1%, 5.9%, and 5.7% respectively as of market close on Wednesday, May 29. And all three firms opened with little change on Thursday.
Nielsen released data Tuesday showing the worst falloff in four years in terms of cigarette sales and volume. Sales fell 6.9% and cigarette volume, the number of packs of cigarettes sold, slipped 11.2%.
New Lawsuits
This report came a week after Brazil’s attorney general’s office sued both British American Tobacco and Philip Morris International, who shares the Marlboro brand and works closely with Altria. The lawsuit seeks compensation for the costs of treating patients with 26 diseases related to tobacco and cigarette smoke exposure. The results of this lawsuit could have severe implications as a verdict against the companies could be the start of lawsuits from many countries across the globe.
Shrinking Markets
To add to the problems for big tobacco companies, smoking worldwide is decreasing as many people realize the health hazards. Meanwhile, e-cigarettes have taken over as a less hazardous alternative. Altria has capitalized on the growing e-cig market by taking a 35% stake in Juul Labs for roughly $13 billion. Juul currently makes up over 70% of the US e-cig market, which makes it difficult for any of the traditional cigarette companies to capture a large share of this newly coveted market.
Although these companies are primarily kept alive by traditional cigarette sales, they have tried to establish e-cig revenue streams. British American Tobacco has the second largest US market share with their e-cig brand Vuse. The firm may have the second largest market share, but this share is not very big and may continue to shrink as Juul dominates the market.
Philip Morris International has found some success in cigarette alternatives as its tobacco heating product, IQOS, has taken over the Japanese market. This device heats tobacco rather than burning it, making it theoretically less harmful than traditional smoking.
Philip Morris International has started to bring the product to other Asian and European countries as it awaits approval by the FDA to be sold in the US. If the FDA were to approve the IQOS, it would be sold by Altria under its Marlboro brand. There is also the possibility of the FDA approving the device to be sold with a “reduced-risk” label, which would most likely help its success in the US.
Get The News You Want
Outlook
Historically, big tobacco companies have been a pretty safe investment and have provided a solid ROI. That may not be the case for much longer as cigarette use worldwide is decreasing and many countries are adopting stricter policies for both smokers and tobacco companies. The outcome of the Brazil lawsuit will provide a lot of information as to the future of tobacco companies as a verdict against them could be devastating.
Big tobacco companies are losing many of their customers to e-cig companies and many would-be customers now take up e-cigs instead of cigarettes. The shrinking market, increased pressure from governments, and a potentially litigious future may make big tobacco companies a risky part of a portfolio. And with cigarette alternatives slowly becoming their main source of revenue there is skepticism about these tobacco firms’ futures.
Altria seems to be the company best set up to succeed of the three as its investment in Juul and relationship with Philip Morris means it has two different stakes in the cigarette alternative market.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Zacks Investment Research
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.