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Why It Makes Sense For Altria To Bet On The E-Cigarette Market

Cigarette smoking in the United States has dropped to the lowest level in generations, at 15.1% , according to the latest data supplied by the Centers for Disease Control and Prevention ( CDC ). The US has also witnessed the steepest decline in the smoking rate in the world. While this is good news, it has forced companies such as Altria ( MO ) to focus its efforts on looking for growth from other alternatives. One such avenue is the e-cigarette market, which has a tremendous potential, given the increasing health awareness and a large number of users who wish to quit smoking. The growing popularity of e-cigarettes has also likely played a role in recent years in the big drop in the smoking rate.

We have a $73 price estimate for Altria , which is higher than the current market price. The chart below has been made using our new, interactive platform.

Safer Than Traditional Cigarettes

While it is not considered healthy, it can be argued that vaping is better than smoking conventional cigarettes. According to a study published in the Annals of Internal Medicine, smokers who replaced standard cigarettes with e-cigarettes considerably reduced the intake of cancer-causing chemicals. Furthermore, a long-term study by Cancer Research UK, which compared exposure to nicotine, tobacco-related carcinogens, and toxins among five groups of people, including smokers of conventional cigarettes, those who had become long-term e-cigarette smokers, and those that had switched to alternatives such as nicotine patches and gums, found that e-cigarette users had far lower levels of tobacco-related carcinogens and toxins than cigarette smokers. Moreover, those that had completely switched to e-cigarettes drastically reduced their intake of cancer-causing chemicals, similar to levels found in those that had switched to nicotine replacements.

While these studies probably focused solely on the impact of e-cigarette smoking on causing cancer, it is still the major disease caused by smoking traditional cigarettes.

Growing Popularity Of E-Cigarettes

The vapor industry is growing at a phenomenal rate in the US, which is the biggest market in the world for e-cigarettes. According to a forecast by Bonnie Herzog, analyst at Wells Fargo, the industry is finely placed to see a growth of $400 million this year. Meanwhile, the tobacco industry is poised to witness a decline of 3.4%. That is, without doubt, a good enough reason for Altria to be focusing on this segment. Moreover, the growth rate in the future is also expected to be exceptional, set to increase at a compound annual growth of 22.5% between 2015 and 2025, with the market reaching over $20.17 billion. While the product was invented in China, it is the US that has given it the impetus it needed to emerge as a challenger to traditional cigarette smoking.

Altria isn't alone in betting on this market. Reynolds American (recently acquired by British American Tobacco) is the market leader in this category with its Vuse brand, which holds over a third of the dollar share. ITG Brands' Blu eCigs is also a major player in the market, at third place, behind Altria's MarkTen brand. In the recently reported quarter, Altria noted that MarkTen's volume grew by over 50%, driven by expanded distribution and category growth. Its national retail share increased to 13.5% in mainstream channels, up from about 13% in the second quarter. The company has announced plans to expand the distribution of MarkTen Bold to approximately 15,000 additional stores in the fourth quarter, which should help in improving the market share going forward.

Recently, it was also reported that Altria has invested in Avail Vapor LLC, a Chesterfield County-based chain, that has grown to become the largest US retailer of vaping devices. This company, founded in 2013, has 102 stores in 12 states and specializes in high-end types of electronic cigarettes. Altria is also awaiting FDA approval to sell Philip Morris' heat-not-burn tobacco device called iQOS in the US. This device has seen tremendous growth in the markets it has been launched in globally, and could be a game-changer for Altria, once introduced.

See Our Complete Analysis For Altria

Have more questions? Have a look at the links below:

  • Altria To Be One Of The Biggest Gainers If The Corporate Tax Rate Falls
  • California Tax Hike Drives Altria's Sales Fall
  • Altria's Stock Tanks On Latest Proposal By The FDA
  • Key Reasons Why We Are Bullish On Altria

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Altria .

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


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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