NEW YORK -Shares of tobacco makers climbed Monday after Goldman Sachs analysts called for volume declines to slow dramatically in 2010 and economic stabilization to help cushion the companies from further margin losses.
“We see improved volume performance emerging,” the analysts wrote in a note to investors. “We continue to believe the pricing environment will remain constructive.”
As the economy crumbled in 2008 and 2009, smokers downgraded to cheaper regional cigarette brands from “premium” names, hurting tobacco makers’ margins. Goldman Sachs analysts said they don’t expect aggressive discounting or accelerating downtrading, especially as the job market improves.
Shares of Philip Morris International Inc. (PM) were recently trading up 0.6% at $47.08, while its former parent company Altria Group Inc. (MO) climbed 1.1% to $19.92. Lorillard Inc. (LO) rose 3.4% to $76.95.
Meanwhile, the stocks also may have gotten a boost as the U.S. Supreme Court ruled Monday morning that New York City can’t use federal racketeering laws to force a cigarette seller to disclose its online client list in order for the city to collect taxes from customers.
It was initially unclear what effect the ruling would have on tobacco makers. Cigarette prices have increased dramatically over the past few years, mostly because of heavy taxes. New York City argued it was difficult to levy taxes on online cigarette sales.
Representatives from Altria and Philip Morris International weren’t immediately available for comment. A Lorillard representative said the company is reviewing the court’s decision but doesn’t sell cigarettes online.
Wall Street Access analyst David Silver said much of Monday’s gains are in response to the Goldman Sachs note.
He said he believes 2010 is “going to be ‘less bad'” in terms of volume declines as the U.S. economy stabilizes. Though Europe and China are introducing new smoking bans and taxes, Silver said he isn’t worried that international volumes will suffer too much and actually sees significant growth opportunities in Latin America and Canada.
By Melissa Korn of Dow Jones Newswires.