Citi tobacco analyst bets on menthol trends
Citi analyst Vivien Azer said Friday that she sees a shift in smoking trends toward more minority, particularly Hispanic, smokers and increased use of menthol cigarettes.
THE OPINION: Azer said that over the last 10 years there has been a notable increase in the percentage of U.S. smokers who are Hispanic. They now account for 13 percent of smokers, versus only 5 percent in 2001, which is due in part to population growth. However, the increase in the number of Hispanic smokers is outpacing rises in smoking among African Americans and is compared with a drop in Caucasian smokers.
The analyst said the shift is tied to increasing popularity of menthol products, which seem to resonate well with the demographic.
Because of this, Azer said that Reynolds America Inc. products Camel and Newport are gaining market share because of their popular menthol products. Marlboro's demographics remain largely unchanged, but she expects gains in the year ahead from new products. She maintained a buy rating on shares of parent company Altria Group Inc. and $39 price target.
The analyst reiterated a "Neutral" rating on Lorrilard Inc., as the company has few popular menthol products and will remain at a disadvantage unless it is able to introduce new products to seize on these trends.
THE STOCK: Lorrilard's shares increased 5 cents to close at $39.51 Friday. Altria's shares increased 28 cents to close at $33.27, in line with broader market trends. Reynolds shares increased 9 cents to close at $42.53.