Credit Suisse - cuts U.S. tobacco sector but not PMI..


January 21, 2010 - Credit Suisse, an international financial services group, downgraded the U.S. tobacco sector to "market weight" (neutral = hold) from "overweight" (outperform = positive = buy) citing concerns about a more promotional environment and the impact of federal regulation on Newport menthol cigarette maker Lorillard Inc's
Stocks

The brokerage, which also cut Lorillard shares to "neutral," said the uncertainty about the U.S. Food and Drug Administration (FDA) regulation this year reduces the ability of U.S. tobacco companies to improve valuations relative to the market.

"We are growing concerned that parts of the federal government are taking a more negative position in the menthol issue. We still do not believe that a ban is likely, but we are not ruling out that the FDA might take some action on menthol," analyst T. Wrede wrote in a note.

Earlier this month, a U.S. judge upheld much of a sweeping federal law limiting the marketing of cigarettes through sponsorships and on merchandise

Wrede said the promotional environment might not improve in 2010, adding that he expects more promotional spending across the industry this year.

The analyst is also cautious about the stocks of the top two U.S. tobacco companies Altria Group Inc and Reynolds American Inc.

However, Wrede raised his rating on Marlboro cigarette maker Philip Morris International Inc (PMI) to "outperform" on an improving international outlook. "We prefer international tobacco stocks for the year, where we expect downtrading in emerging markets to improve by the middle of the year and continued strong pricing in developed markets," he said.

Reference: RESEARCH ALERT-UPDATE 1-Credit Suisse cuts US tobacco sector, Reporting by Viraj Nair in Bangalore; Editing by Gopakumar Warrier, Reuters, 1/19/2010.

0 comments: