NEW YORK - Big tobacco companies should be
able to raise prices and keep profits growing despite weakening sales, a Citi
Investment Research analyst said Tuesday.
Adam Spielman said Philip Morris International
Inc. could post 12 percent annual profit growth over the next few years, and
Altria Group Inc. could grow at a 9 to 10 percent clip. That's as good as a lot
of other big consumer product makers, he said, but the stocks are trading at a
discount because of concerns about litigation and declining sales.
But the companies can keep increasing their
profits as long as prices rise faster than sales fall, he wrote. Spielman said
a pack of Marlboros costs $11 in the U.K., and prices are still going up to
keep pace with wages.
"This implies U.S. prices have plenty of
room to increase," he wrote. Costs are also coming down, he added.
Spielman expects the sector to outperform, and
he started coverage of PMI and Altria with "Buy" ratings. He placed a
"Hold" rating on shares of Reynolds American Inc., and said PMI and British
American Tobacco PLC are his top picks.
He said fewer lawsuits are being filed against
tobacco companies, so their legal risk has declined.
