Technical Analysis: Cigarette Stocks Still a Healthy Portfolio Choice

Wed Jan 16, 2013 8:02am EST

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LONDON, January 16, 2013 /PRNewswire/ --

    Companies mentioned in this release have been covered by our technical research
team. These technical analyses are available for free at  

    While much has been made over government efforts to dissuade the use of tobacco,
several companies in the cigarettes industry have still managed to perform well over the
last little while. The industry is currently dealing with a number of newly proposed
and/or implemented regulatory changes around the globe, but looks well positioned to
continue to grow.  

    Packaging is one area where governments have been imposing their will of late.
Australia now has regulations in place that require all cigarettes to be sold in the
same packaging, except for the name and type of cigarette, and also requires that 75% of
the front side of packaging be covered with graphic images. How this well affect
cigarette sales remains to be seen, but other nations are certainly watching closely.
The European Union's Health Commission has declared revisions to its Tobacco Products
Directive, which if approved would usher in similar packaging laws. In response, Philip
Morris International Inc. [ ]'s (1) (NYSE : PM)
Vice President, Communications, Julie Soderlund, stated via press release (2) in
mid-December 2012:  

    "PMI is pleased that the Commission has finally issued its proposed Tobacco Products
Directive so that it now may be reviewed and debated in an open, transparent, objective
and constructive manner by all concerned in the coming months." She said further down
the release: "We trust that the hostility of some towards our industry will not blind
them to the important economic, legal and societal issues that this proposed Directive
raises. We believe that its numerous flaws need to be addressed to ensure that the EU
implements a regulatory framework for tobacco products in Europe that is fair,
science-based and effective in reducing the harm caused by smoking without imposing
unnecessary burden on the economy. Europe deserves nothing less."  

    Although smoking has declined in a number of countries, companies, like Altria Group
Inc. (NYSE : MO), have still managed to turn in solid numbers due to innovative products
and the ability to raise prices without significant backlash, among other things. For
its most recent quarter, Altria saw revenue growth of 2.2%, and when adjusted to include
one-time items, earnings were up 3.2%. Whilst higher cigarette prices on all its
cigarette brands helped boost profit, debt-repurchase charge impacted the overall
outcome by 44%. Our technical analysis on Altria is available at  

    The top players in the cigarette industry, Altria Group, Lorillard Inc.
[ ](3) (NYSE : LO) and Reynolds American
[ ](4) (NYSE : RAI) have been seeing success with
smokeless tobacco products. With traditional cigarette volumes on a decline, companies
are adapting and trying to stay profitable. In 2012, Lorillard bought Blu e-cigs for
$135 million. This acquisition brought in $14 million in revenue for Lorillard in its
third quarter earnings report. The value of being proactive in the smokeless products
segment has become key for Reynolds American has it tackles with dwindling cigarettes

    The industry has also been receiving increased investor attention of late, as many
industry players offer high dividends and this is a major long-term argument for


        1) Philip Morris International Technical Analysis [
        2) Source - Philip Morris International Comments on the European Commission's
          Proposed Revision of the Tobacco Products Directive ( - Media Center)
        3) Lorillard Inc. Technical Analysis [
        4) Reynolds American Technical Analysis [

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