What Do Nicotine Laws Mean for Tobacco Stocks?

Tobacco stocks are the bedrock of many income investors' portfolios. So what does the U.S. Food and Drug Administration's announcement mean for shareholders?

Philip Gorham 31 July, 2017 | 11:33AM

The U.S. Food and Drug Administration's announcement that it intends to lower levels of nicotine in cigarettes will not impact the outlook for tobacco companies, according to Morningstar equity analysts. We are fairly sanguine about the impact on tobacco manufacturers' long-term cash flows from and we maintain our wide moat ratings and fair value estimates.

The share price correction brings it more in line with our fair value estimate

Such measures are likely to accelerate the migration of smokers to substitute products, and we expect the large tobacco companies to continue dominating the industry. Although we do not believe the valuation of British American Tobacco (BATS) has been impaired by the high-single-digit amount implied by the market's reaction, we have considered the company as being substantially overvalued for some time, and the correction brings the market price more into line with our fair value estimate.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
British American Tobacco PLC2,710.50 GBX-2.50
Imperial Brands PLC1,500.81 GBX0.22
Philip Morris International Inc76.45 USD-0.37

About Author

Philip Gorham  

Audience Confirmation


By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites
© Copyright 2020 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies