Tobacco stocks have recovered from some of their malaise last year, notes Stifel analyst Christopher Growe.
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Tobacco companies begin reporting first-quarter earnings next week, and Stifel argues there’s reason to be upbeat about the results.
Analyst Christopher Growe reiterated Buy ratings on Altria Group (ticker: MO) and Philip Morris International (PM), with price targets of $56 and $100, respectively, although he favors Philip Morris.
In early trading Friday, Altria Group was up 0.7% to $51.95 and Philip Morris was up 0.5% to $92.29. Philip Morris is slated to report on Tuesday; Altria will report earnings on April 29.
Growe is confident about the coming reports, given the potential for strong growth, and other catalysts that could play out later in the year, including increased volume—particularly for reduced-risk products—and pricing power.
Moreover, while the stocks have recovered from some of their malaise last year, with Altria up nearly 26% in 2021 and Philip Morris rising 11% year to date, he notes that they’re still trading cheaply, especially because he believes more robust fundamental growth may be ahead.
Growe thinks both companies are well positioned in the reduced-risk category, and these products “provide a distinct growth advantage, including in 2021.” Philip Morris’s heat-not-burn device iQos is a favorite among other analysts as well. Altria distributes it in the U.S., and has investments in vaping company Juul and marijuana firm Cronos Group (CRON) that bulls see as opening new opportunities beyond traditional cigarettes.
Growe predicts that pricing will “remain robust” this year, for both cigarettes and smokeless tobacco, which should allow for solid profits. Moreover, he doesn’t think that investors need to worry about the Democrats’ hold on the White House and lower chamber of Congress, given the nearly even split between the two parties.
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