(Altria, Lorillard and Philip Morris International story updated to reflect Monday closing share prices and question for TheStreet readers)
NEW YORK (TheStreet) -- Stifel Nicolaus has lowered its ratings on Altria (MO) - Get Report and Lorillard (LO) to hold from buy citing the narrowing of the relative valuation gap between U.S. tobacco stocks and the S&P 500 and consumer staples.
"U.S. Tobacco stocks have been very strong performers over the past two years ... as the industry navigated its way superbly through a very difficult operating environment replete with major tax increases (both federal and state), litigation challenges (largely "won" most of these challenges), and regulatory threats (FDA in particular)," analyst Christopher Growe wrote in an equity research report.
"Amid this environment, the industry, led by Altria, continued to price up significantly, creating a strong profit algorithm over this period. In addition, the consumer, weak as he or she may be, continues to be attracted to the premium brands in the category -- Marlboro and Newport in particular continue to gain market share."
"However, with the stocks having crossed or at least moved very close to our target prices, we feel most comfortable moving to the sidelines and to a hold rating for both stocks."
Growe said the biggest risks to the new hold ratings are the companies' continued solid EPS growth, no real change in multiples and strong dividends yields -- helping supply upside potential for investors.
Amid all this, Growe said he is left recommending only
Philip Morris International
within his tobacco coverage. He maintains his buy rating for Philip Morris International and increases his price target for the stock to $62 from $56 previously.
Altria stock finished Monday's trading session flat at $24.01, while Lorillard stock was 0.3% lower at $81.19. Shares of Philip Morris International were down 1.1% to $55.46.
As Stifel Nicolaus makes adjustments to its recommendations for these tobacco stocks, how are you feeling about the sector as a whole? Take our poll below, and see what
thinks about the tobacco sector.
-- Written by Andrea Tse in New York.
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