Tobacco companies manufacture, market and sell cigarettes and other tobacco products. The tobacco giants have been cash cows for many investors as they pay hefty dividends and raise the dividends year after year. The tobacco customers, once hooked, are customers for life except for a small percentage of quitters.
The major players in the tobacco industry are listed below.
|Reynolds American Inc
Some tobacco companies listed above have massive amounts of debt. The debt/equity ratio for Altria (MO) is 4.17. Lorillard (LO) and Philip Morris (PM) have negative equity and as a result the debt/equity number remains meaningless. The book value/share for LO is -4.95 and PM is -3.37. The amount of debt and negative equity of these companies keeps me away, even though the the stockholders have been rewarded with a YTD performance of 17.56% (MO), 19.12% (LO), 10.25% (PM).
The other two listed tobacco giants have better and manageable debt – BTI with a debt/equity of 1.79 and RAI with a debt/equity of 1.10.
The tobacco industry faces more challenges around the world – facing an increased resistance in marketing and sales of the product, litigation and acknowledgement from the public about the health risks associated. The western world taxes cigarettes highly (with the exception of US – although some states in the US tax cigarettes more than others) in order to get people to quit as it puts immense load on the public health system.
Some companies have had decent success by getting into the e-cigarette business and others such as Altira have diversified by producing and selling alcohol products. All things considered, I have decided to stay away from the tobacco companies for now and look for a better valuation in the future to invest in them.
Disclaimer: The information provided here is for educational purposes only. All opinions here are my personal opinions and should not be taken as financial advice. I am not qualified to be a financial advisor. Always consult with your financial advisor before investing in any of the companies mentioned on this blog.