Tobacco Stock Investors Overwhelmingly Bullish

Source from:  The Street 10/08/2010

Recently, we at TheStreet asked investors how they were feeling about the tobacco sector amid a downgrade by Stifel Nicolaus analysts of Altria (MO) and Lorillard(LO) to hold from buy -- with the analysts citing the narrowing of the relative valuation gap between U.S. tobacco stocks and the S&P 500 and consumer staples. The results indicated an overwhelmingly bullish view of the sector. Of the survey takers, 89.3% were bullish about the sector, with the remaining 10.7% bearish on the sector. It was recently revealed that the Russian government wants to ban tobacco advertising by 2012 and ban public smoking by 2015. Bloomberg reported that Russian prime minister Vladimir Putin said smoking is a "calamity" for national health as he works to crack down on smoking. TheStreet's director of research and vice president of strategy Stephanie Link said this plan by Russia would be a "non event" for tobacco companies that are more U.S.-centric or diversified, such as Altria. However, it would be worth keeping an eye on for companies such as Philip Morris International(PM), where international markets have been the main source of growth. Stifel Nicolaus analyst Christopher Growe said that when it comes down solely to volume implications from the ad and smoking bans, the ads won't have much impact on volume -- money will actually be saved from this -- but the smoking ban and tax increase could hurt volume. Growe added that it's difficult to assess exactly how this plan would impact international tobacco businesses until more details about the level of tax increases or extent of the smoking ban are revealed. "Those regulations are very similar to other countries', so barring any material change from what we've seen here I would call it leveling the playing field," Growe said. "It would just make Russia look like other countries" "While I worry most about tax changes, an initial smoking ban, based on its severity, would be a negative for consumption at least in year one." Growe said it would hurt Japan Tobacco, Philip Morris, British American Tobacco(BTI) and Imperial Tobacco(ITYBY). "Given the size of that market, every company is present there and it is very important for all. Philip Morris has a 26% market share but it spans all segments from Parliament and Marlboro as premium down to Bond Street as a discount offering." Enditem