The tobacco industry is expected to remain resilient due to steady demand and the launch of smoke-free and other innovative products such as e-cigarettes and vape goods. Therefore, I think fundamentally sound tobacco stocks, Altria Group, Inc. (MO), Turning Point Brands, Inc. (TPB), and Vector Group Ltd. (VGR) could be ideal buys in February.
Despite the health risks associated with tobacco consumption, their consumption remains steady worldwide. The industry continues to face challenges like increased taxes, stringent regulations, heightened health-related concerns, etc.
However, the global tobacco market is expected to grow at a CAGR of 2.5% until 2030. The industry is witnessing a trend of new product launches, which intrigues consumers to consume tobacco and thereby drive market growth. The market continues to thrive due to various influential factors, persisting despite ongoing endeavors to diminish tobacco consumption and address its detrimental effects.
Since people of all ages have become more concerned about traditional cigarettes, the desire for substantially less hazardous e-cigarettes and vape goods has grown. E-cigarettes and e-liquid products are available in various flavors and types, and advances in e-cigarette technology have enabled users to choose their device and flavor of interest, helping the industry expand.
Due to increased awareness of safe and smoke-free alternatives, the global e-cigarette and vape market is set to reach $182.84 billion by 2030, growing at a CAGR of 30.6%.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Tobacco stocks, beginning with the third choice.
Stock #3: Altria Group, Inc. (MO)
MO manufactures and sells smokable and oral tobacco products. They offer cigarettes under the Marlboro brand, cigars and pipe tobacco under the Black & Mild brand, and moist smokeless tobacco and snus products under brands like Copenhagen, Skoal, Red Seal, and Husky.
In terms of the trailing-12-month gross profit margin, MO’s 69.53% is 106.5% higher than the 33.67% industry average. Likewise, its 24.02% trailing-12-month Return on Total Assets is 347.2% higher than the industry average of 4.71%. Furthermore, the stock’s 58.66% trailing-12-month levered FCF margin is significantly higher than the industry average of 5.13%.
MO’s net revenues for the fourth quarter ended December 31, 2023, came in at $5.98 billion. Its gross profit stood at $3.50 billion. Its adjusted net earnings and adjusted EPS came in at $2.08 and $1.18, respectively.
Street expects MO’s EPS and revenue for the quarter ending March 31, 2024, to be $1.17 and $4.75 billion, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters, which is impressive.
Over the past three months, the stock has declined marginally to close the last trading session at $40.09.
MO’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Quality and a B in Momentum. It is ranked #6 out of 9 stocks in the A-rated Tobacco industry.
Beyond what is stated above, we’ve also rated MO for Value, Sentiment, Growth, and Stability. Get all MO ratings here.
Stock #2: Turning Point Brands, Inc. (TPB)
TPB manufactures, markets, and distributes adult consumer products. It operates through Zig-Zag Products, Stoker's Products, and NewGen Products segments. Zig-Zag Products segment markets and distributes rolling papers, tubes, finished cigars, make-your-own cigar wraps, and related products, as well as lighters and other accessories under the Zig-Zag brand.
TPB’s trailing-12-month gross profit margin of 49.14% is 45.9% higher than the industry average of 33.67%. Its trailing-12-month levered FCF margin of 10.82% is 111.1% higher than the 5.13% industry average.
For the fiscal third quarter, which ended September 30, 2023, TPB’s net sales came in at $101.72 million. The company’s adjusted EBITDA stood at $24.40 million. In addition, its net income increased 15.4% year-over-year to $158.78 million. Also, its adjusted net income and adjusted EPS came in at $14.52 million and $0.76 respectively.
Street expects TPB’s revenue to be $90.11 million for the fiscal fourth quarter ending December 2024. Its EPS is expected to be $0.68 for the same quarter. It surpassed revenue estimates in three of four trailing quarters.
Shares of TPB has gained 2.8% over the past year to close the last trading session at $22.97.
It’s no surprise that TPB has an overall rating of B, which equates to Buy in our proprietary rating system.
TPB has a B grade for Momentum. It is ranked #5 in the same industry.
In addition to the POWR Ratings highlighted above, one can access TPB’s ratings for Quality, Growth, Stability, Value, and Sentiment here.
Stock #1: Vector Group Ltd. (VGR)
VGR manufactures and sells cigarettes. It operates in two segments: Tobacco and Real Estate. The company offers cigarettes under various brand names such as EAGLE 20’s, Pyramid, Montego, Grand Prix, Liggett Select, Eve, and USA, as well as partner and private label brands.
VGR’s trailing-12-month gross profit margin of 48.65% is 44.5% higher than the industry average of 33.67%. Its trailing-12-month asset turnover ratio of 0.87x is 3.3% higher than the industry average of 0.84x.
For the third quarter ended September 30, 2023, VGR’s total revenues came in at $364.11 million. Its adjusted EBITDA rose 8.8% over the prior-year quarter to $94.93 million. The company’s adjusted net income increased 38.2% year-over-year to $52 million. In addition, its adjusted EPS came in at $0.33, representing an increase of 37.5% year-over-year.
For the quarter ended December 31, 2023, VGR’s EPS is expected to increase 3.2% year-over-year to $0.32. Its revenue for fiscal year ending December 2024 is expected to increase 6.3% year-over-year to $1.51 billion.
Over the past three months, the stock has declined 6.2% to close the last trading session at $9.91.
VGR’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has a B grade for Momentum, Value, and Quality. It is ranked #2 in the same industry.
Click here to access the additional VGR ratings (Growth, Sentiment, and Stability).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
MO shares were trading at $40.08 per share on Friday afternoon, down $0.01 (-0.02%). Year-to-date, MO has declined -0.64%, versus a 5.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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