On Jan 06, Zacks Investment Research upgraded Altria Group Inc. (MO) to a Zacks Rank #1 (Strong Buy) after it entered into a strategic agreement with Philip Morris International Inc. (PM) to combine their marketing power to ramp up the distribution of their products.
Why the Upgrade?
On Dec 22, 2013, Richmond, VA-based Altria Group entered into a strategic agreement with Philip Morris under which Philip Morris will market Altria’s MarkTen e-cigarettes internationally and the latter will distribute two of Philip Morris’ heated tobacco products in the United States. The heated tobacco products are claimed to be less harmful than conventional tobacco products as they heat the nicotine instead of burning them.
Altria and Philip Morris have also decided to partner on a regulatory engagement related to the products. The two companies will also work on gaining shares as well as improving existing versions for the products. Such collaboration is encouraging as it will help the participating companies maintain market share amidst declining volume and growing awareness against tobacco products.
In Nov 2013, Altria decided to hike the price by 7 cents per pack on its Marlboro and L&M brands. In addition, Altria’s subsidiary, PM USA has raised the list prices by 7 cents per pack and Marlboro Snus Tins by 6 cents. The price hike is encouraging as this will help Altria maintain margins amidst declining volume.
Moreover, Altria has been reporting strong results for the past several quarters backed by higher operating income and pricing power. We expect the momentum to continue in the upcoming fourth quarter as well.
Other Stocks to Consider
Some better-ranked tobacco companies include Lorillard Inc. (LO) carrying a Zacks Rank #1 (Strong Buy). Another consumer staple company worth considering is Green Mountain Coffee Roasters Inc. (GMCR). Which carries a Zacks Rank #2 (Buy).
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