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Globe and Mail
26-06-2025
- Business
- Globe and Mail
MO or PM: Which Tobacco Giant Offers Better Value in 2025?
For investors looking at the tobacco sector in 2025, the choice often comes down to two giants — Altria Group, Inc. MO and Philip Morris International Inc. PM. Though both companies share a common origin, their business strategies have diverged. Altria remains a U.S.-focused powerhouse, relying on its strong cigarette portfolio while gradually expanding into next-generation products. In contrast, Philip Morris is leading the global charge toward reduced-risk products (RRPs), with successful innovations like IQOS and ZYN. While Philip Morris is widely viewed as the growth leader, Altria offers compelling value through its high dividend yield, attractive valuation and growing traction in RRPs — making it a strong contender for income-focused investors and bargain hunters. The Case for Philip Morris Philip Morris is at the forefront of the tobacco industry's shift toward a smoke-free future. Its flagship heat-not-burn product, IQOS, has become a cornerstone of this transformation, gaining strong traction in key international markets. IQOS offers adult smokers an alternative to traditional cigarettes, aligning with global trends toward harm reduction. Its success has not only driven volume growth but also helped Philip Morris solidify its position as a leader in the global RRP segment. The company further expanded its smoke-free portfolio with the acquisition of Swedish Match in 2022, bringing the popular ZYN nicotine pouches under its umbrella. This move gave Philip Morris a strong presence in the fast-growing oral nicotine market and created a more complete RRP ecosystem that spans both inhalable and non-inhalable products. In the first quarter of 2025, smoke-free products contributed 42% of total revenues and 44% of gross profit, highlighting their growing contribution to the business. IQOS and ZYN continued to gain market share, driving 15% year-over-year revenue growth in the smoke-free segment. At the same time, Philip Morris has managed to sustain growth in its traditional tobacco segment, reporting 3.8% organic revenue growth in combustibles in the first quarter. This balance between legacy product strength and forward-looking innovation underscores the company's ability to execute a dual-track strategy. Furthermore, its diversified global footprint allows PM to tap into new markets. However, this global strategy is not without risks. The company is exposed to currency volatility, which weighed on first-quarter results, including a 7-cent hit to adjusted earnings per share (EPS) from foreign exchange losses. Additionally, governments around the world are imposing stricter regulations on nicotine products, including marketing restrictions on pouches and further scrutiny of heated tobacco devices. Philip Morris' strong lead in RRPs sets high expectations, but any regulatory hurdles or changes in consumer trends could slow its growth trajectory. One-Year Price Performance The Case for Altria Altria continues to prove its resilience in the face of declining cigarette volumes, thanks largely to its strong pricing power. In the first quarter of 2025, the company's ability to raise prices helped offset shipment declines across both the Smokeable and Oral Tobacco segments. Historically, Altria has relied on pricing as a tool to maintain profitability, and that strategy remains effective even as consumption trends shift. As cigarette demand tends to be inelastic, the company can continue to drive margins despite lower volumes. With projected adjusted earnings per share ranging between $5.30 and $5.45 for 2025, indicating up to 5% year-over-year growth, Altria provides consistent earnings visibility alongside a dividend yield exceeding 6.5%, making it particularly attractive to value and income-focused investors. Altria is also making steady progress in its smoke-free future strategy, which is critical as consumer preferences evolve. Its wholly owned subsidiary, Helix Innovations, is expanding the reach of on!, a tobacco-derived nicotine pouch product that is quickly gaining traction in the U.S. market. In the first quarter of 2025, shipments of on! grew 18% year over year to over 39 million cans. The product's share of the oral tobacco category rose to 8.8%, and it captured 17.9% of the nicotine pouch market, despite higher retail pricing. This performance reflects the strength of the brand and growing consumer acceptance. Following its 2023 acquisition of NJOY, Altria has entered the e-vapor category with a clear commitment to product quality and regulatory compliance. While a recent regulatory ruling led to the market exit of NJOY ACE, management views this challenge as an opportunity to rethink its vapor portfolio and relaunch with a stronger, more innovative lineup tailored for adult consumers. By focusing on a fully regulated market and leveraging NJOY's R&D capabilities, Altria aims to carve out a durable position in a category. To accelerate its strategic goals and improve efficiency, Altria has introduced a company-wide transformation initiative called Optimize & Accelerate. Savings from this will be reinvested to support its long-term vision and 2028 enterprise goals. Meanwhile, the company continues to closely monitor macroeconomic pressures, evolving consumer behavior, illicit vapor enforcement, and shifting regulations. Despite these challenges, Altria remains a fundamentally sound investment with strong cash flow, pricing power, a growing presence in RRPs, and a commitment to delivering shareholder returns, making it a stock worth considering in 2025. How Does the Zacks Consensus Estimate Compare for PM & MO? The Zacks Consensus Estimate for Philip Morris' 2025 EPS has remained unchanged over the last 30 days at $7.47. In comparison, the consensus EPS estimate for Altria has moved up by 2 cents to $5.37 during the same period. Altria's upward EPS revision signals improving sentiment, while Philip Morris' steady estimate suggests stable but fully priced expectations. Valuation & Price Performance of PM & MO When it comes to valuation, Philip Morris trades at a forward 12-month P/E of 22.76x, reflecting investors' willingness to pay a premium for its global footprint and smoke-free momentum. Altria, on the other hand, trades at a significantly lower multiple of 10.79x, making it more attractive from a value perspective, especially for income-focused investors seeking high-yield, stable earnings in a mature market. Stock performance over the past year further highlights the divergence between the two companies. Philip Morris has delivered an impressive 76.1% gain, far outpacing Altria's 27.1% and the broader S&P 500's 10.8% return. This strong rally suggests heightened investor confidence in PM, though it may also limit near-term upside. Investor Takeaway: Altria vs. Philip Morris in 2025 Both Altria and Philip Morris offer unique strengths for investors in 2025. Philip Morris stands out for its global leadership in RRPs, innovation in heated tobacco and strong stock performance. However, much of its transformation success appears priced in, and ongoing regulatory and currency risks could pose challenges. Altria, while being more U.S.-focused and facing cigarette volume pressures, presents a compelling value story. With a lower valuation, improving traction in smoke-free products like on! and room for vapor category re-entry, Altria offers more upside potential for value and income-oriented investors seeking growth. MO currently has a Zacks Rank #2 (Buy), while PM carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. Research Chief Names "Single Best Pick to Double" From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all. This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months. Free: See Our Top Stock And 4 Runners Up Altria Group, Inc. (MO): Free Stock Analysis Report Philip Morris International Inc. (PM): Free Stock Analysis Report
Yahoo
26-06-2025
- Business
- Yahoo
Top 3 Tobacco Stocks to Watch Amid Strong Industry Growth Trends
The Zacks Tobacco industry is undergoing a strategic transformation, increasingly prioritizing smoke-free alternatives in response to rising consumer health awareness and tightening regulations on cigarettes. Leading tobacco companies — such as Philip Morris International Inc. PM, Altria Group, Inc. MO and Turning Point Brands, Inc. TPB — are ramping up investments in reduced-risk products (RRPs) to meet growing demand for healthier nicotine ongoing declines in traditional cigarette sales due to inflation and changing consumption patterns, the industry continues to leverage strong pricing power, with loyal consumers often absorbing price increases. This dual strategy — aggressive RRP expansion and strategic pricing — positions the tobacco sector for resilient, long-term growth in an increasingly regulated and health-conscious marketplace. About the Industry The Zacks Tobacco industry includes companies that manufacture and sell cigarettes as well as tobacco and nicotine-based products, such as cigars, snuffs and oral tobacco. Some companies also offer RRPs, such as e-cigarettes, vaping and heat-not-burn variants. A few of the firms are engaged in making devices and attachments needed in vaping and heat-not-burn products. Most products manufactured by the tobacco industry participants fall under the strict vigilance of the U.S. Food and Drug Administration and are required to follow the permissible levels of nicotine in manufacturing. Players in this space sell products mostly through large retailers, distributors, convenience stores, drugstores, wholesalers and grocery chains. Some international tobacco firms also operate in the country through subsidiaries. 3 Trends Shaping the Future of the Tobacco Industry Rising Popularity of Smoke-Free Options: The growing popularity of smoke-free alternatives — such as heated tobacco, vapor products and oral nicotine — is reshaping the tobacco industry. Rising health awareness and stricter smoking regulations are prompting consumers to seek safer, more modern options for nicotine consumption. These RRPs, marketed as safe due to their innovative formulations and alternative consumption methods, are gaining popularity as consumers seek healthier options and smoking cessation solutions. Major tobacco companies are investing heavily in expanding their presence in this category, focusing on innovations that improve user experience and energy efficiency. As a result, the tobacco industry has seen significant revenue growth from RRPs and smoke-free products, with continued demand expected to fuel positive growth and transformation within the Power: Tobacco companies continue to rely on strong pricing power to offset declining cigarette sales volumes. Due to the addictive nature of cigarettes, consumers tend to remain relatively insensitive to price increases, enabling companies to implement regular price hikes without significantly impacting demand. This pricing strategy has helped industry players maintain strong revenues despite the ongoing drop in cigarette sales, reinforcing the profitability of traditional tobacco in Cigarette Sales Volumes: The tobacco industry is facing significant challenges in cigarette sales volumes due to persistent inflation and economic pressures that have altered consumer spending behavior. Rising costs and shifts toward smoke-free alternatives are contributing to the decline in cigarette consumption. In addition, regulatory restrictions on sales, advertising, and manufacturing, stemming from health concerns over nicotine, are further impacting sales volumes. Since traditional cigarettes still represent a major source of revenues for tobacco companies, the ongoing decline in cigarette sales poses a considerable concern for the industry. Zacks Industry Rank Indicates Bright Prospects The Zacks Tobacco industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #65, which places it in the top 27% of more than 250 Zacks group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to industry's position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Since the beginning of April 2025, the industry's consensus estimate for current financial year earnings has increased 2.2%.Before we present a few stocks that you may want to consider for your portfolio, let's look at the industry's recent stock-market performance and valuation picture. Industry vs. Broader Market The Zacks Tobacco industry has outperformed the Zacks S&P 500 composite and the broader Zacks Consumer Staple sector over the past industry has gained 63.8% over this period compared with the broader sector and the S&P 500's rise of 3.2% and 9.8%, respectively. Industry's Current Valuation On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing consumer staple stocks, the industry is currently trading at 15.78X compared with the S&P 500's 21.89X and the sector's the past five years, the industry has traded as high as 15.78X, as low as 9.03X and at the median of 10.89X, as the chart below shows. 3 Tobacco Stocks to Keep a Close Eye On Altria Group: This Zacks Rank #2 (Buy) company is making notable progress in its transformation toward a smoke-free future. By prioritizing RRPs, driving innovation and ensuring regulatory compliance, Altria is reshaping its business model for long-term sustainability. A cornerstone of this transition is the company's fast-growing oral nicotine pouch brand, on!, which continues to gain market share and serve as a key growth driver. Through its 'Optimize and Accelerate' initiative, Altria is streamlining operations, boosting efficiency, and leveraging strong pricing power to support profitability. Backed by the enduring strength of legacy brands like Marlboro and its expanding smoke-free portfolio, Altria is well-positioned for continued growth in the evolving tobacco landscape. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. The Zacks Consensus Estimate for MO's current financial year earnings per share (EPS) has moved up by a couple of cents in the past 30 days to $5.37. Shares of Altria have surged 29.3% in the past year. Philip Morris International: This Zacks Rank #3 (Hold) company is undergoing a transformative shift as it pivots from traditional cigarettes to a smoke-free future. The company has emerged as a global leader in RRPs, leveraging innovation, strategic acquisitions and robust pricing power to accelerate its transition. With flagship smoke-free offerings like IQOS and ZYN gaining strong market traction, Philip Morris is actively reshaping its product portfolio to align with evolving consumer preferences and global health trends. This strategic evolution not only reinforces its commitment to a more sustainable and healthier future but also supports resilient financial performance. As Philip Morris advances toward its goal of becoming a majority smoke-free company, it continues to set industry benchmarks in innovation, sustainability and leadership within the global tobacco market. The Zacks Consensus Estimate for PM's current financial year EPS has remained unchanged in the past 30 days at $7.47. Shares of Philip Morris have gained 81% in the past year. Turning Point Brands: This Zacks Rank #3 company is gaining momentum as a leading manufacturer, marketer, and distributor of branded consumer tobacco and alternative smoking products. The company's flagship brands, including Zig-Zag and Stoker's, are driving growth through innovative product launches and expanded distribution channels. Its modern oral nicotine products are also experiencing strong consumer and retail demand, reflecting the rising popularity of smokeless tobacco alternatives. Turning Point is capitalizing on its well-established sales network and strategic partnerships to enhance retail visibility and cross-sell its product portfolio. With a focus on innovation, brand building, and customer engagement, TPB is well-positioned to capture greater market share in the evolving RRPs Zacks Consensus Estimate for TPB's current financial year EPS has remained unchanged at $3.36 over the past 30 days. Turning Point Brands shares have skyrocketed 132.8% in the past year. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Philip Morris International Inc. (PM) : Free Stock Analysis Report Altria Group, Inc. (MO) : Free Stock Analysis Report Turning Point Brands, Inc. (TPB) : Free Stock Analysis Report This article originally published on Zacks Investment Research ( Zacks Investment Research Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
