Group (ticker: MO) share has felt the clamp of falling cigarette volumes, but Wells Fargo argues that strong pricing power can offset this trend.
The Back Story . Now we all know that 2018 was difficult on consumer-founder shares and even more difficult on tobacco companies. Everything comes down to vaping: E-cigarettes take bigger and bigger market share from traditional products. Juul Labs has been the big winner in the United States (how big tobacco has not yet been able to introduce its own devices yet) and while Altria has at least some exposure to this rapidly growing market through its Juul efforts, some claim it comes too high a price. All this has led to a faster than expected decline in cigarette volumes along with negative feelings about stocks and peers
Philip Morris International
(PM), especially since the food and drug administration is considering spreading on menthol as well.
The Plot Twist . With expectations so low, Altria jumped after its better-than-dreaded earnings report, and Philip Morris also got a demand boost, with CEO who tells Barron's that the company has nothing to fear from new weapons participants. Philip Morris has had double-digit gains so far, even though Altria is still mired with small losses.
Moving Forward . While vaping may be the subject grabbing all the headlines, investors would do well to remember pricing power, Wells Fargo s Bonnie Herzog .
Affordability is an important tool for tobacco tasters: Given that the smoking figures (at least of traditional cigarettes) are declining, the prices of tobacco companies managing revenue streams increase as they decrease over time. This is another reason why e-cigarettes are so worried: their popularity means that traditional cigarettes are less attractive – a situation that causes prices to rise, and price increases can push existing smokers against weapons devices faster than Altria and Philip Morris have given their iQOS product still has not received approval in the US
But Herzog claims that investors are too pessimistic at this point. Her research points to a new cigarette price increase that is coming soon, perhaps in the second half of March, at levels in line with previous price increases, which strengthens her confidence in Altria's pricing power.
Her long-standing bulletins don't have & # 39; I haven't played yet, but she writes that the new partnership with Juul should soon bear fruit: Coupons for their products will soon appear in Altrom's Marlboro brand cigarette packs. "While we expect some cannibalization of Marlboro as a result … we still believe in the overall economy work of Altria's favor, as Altria gets 35% of Juul's growing revenue base, which becomes significantly more incremental when international markets come online (" nothing but "This puts Altria in a good position, as the company is" even better aligned today than it has ever been with the FDA's vision for a non-smoking future. "
Altria is down 1% to $ 48.21 in recent trade, weighed down partly by the hard words of the FDA.
Write to Teresa Rivas at firstname.lastname@example.org