Altria Is Facing Fewer Threats --- and One Analyst Says Its Time to Buy

Citigroup upgraded Altria citing smaller threats from vaping and the FDA. It cut Philip Morris to Neutral.

Citigroup upgraded Altria citing smaller threats from vaping and the FDA. It cut Philip Morris to Neutral.

The U.S. stocks have outperformed international ones in nearly all areas, it seems, except one: tobacco. The time to bet on smoking in the U.S. may have arrived.

That’s the view of Citigroup analyst Adam Spielman, who upgraded Altria (MO) Monday, while cutting Philip Morris International (PM).

It wasn’t that long ago that everyone assumed that Altria was going to face perpetual pressure from vaping and onerous FDA regulation, while Philip Morris would benefit from laxer regulations overseas. Their performance reflected those assumptions: Altria suffered losses of 9.9% including reinvested dividends during the past three years, while Philip Morris has returned 8.9%. Both have lagged the S&P 500, which has returned 52%, and the Dow Jones Industrial Average, which has returned 57%.

Now, Spielman isn’t so sure the assumptions are true anymore. He notes that the vaping “threat” has proven to pose much less of a problem than first anticipated, while U.S. regulators appear to have backed away from attempts to regulate the amount of nicotine per cigarette to next-to-nothing. As a result, he recommends betting big on companies that are less focused on so-called next-generation products, or NGPs. “[We] are getting more bullish on the tobacco sector than before, especially the businesses focused on cigarettes,” he writes. “Conversely we think investors will become a little less concerned about NPGs. We are not saying NGPs are now irrelevant; rather we are saying we think the balance of relevance has shifted, and this is not (yet) adequately reflected in the share prices.”

The valuation of the more tobacco-focused companies look particularly compelling Spielman says. Altria, for one, trades at 11.2 times 12-month forward earnings, according to Bloomberg, well below Philip Morris’ 14.9 times. “These companies last traded on their current P/Es in the late 1990s and early 2000s, when investors thought that litigation might lead to bankruptcy,” he writes.

Of course, Altria has gained 25% during the past two months, so some of the change may already be reflected in the shares. But with valuations so low, who knows how high its stock can go if it catches fire.

Altria stock has gained 1.4% to $50.42 at 11:18 a.m. on Monday, while Philip Morris has fallen 1% to $82.15.

Write to Ben Levisohn at

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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