Tobacco has gained a new lease of life from alternatives despite forecasts that the world’s last cigarette smoker could quit by around 2050, Citi Group says.
A rapid rise of vapes and other nicotine-delivering products has meant that the industry is changing and is “no longer […] in structural decline,” Citi analysts said in a note.
“Combustibles still account for the majority of ‘big’ tobacco revenues,” the bank admitted, “but rapid growth in alternative nicotine delivery products means that business models are changing”.
Citi bumped up a recommendation for multinational tobacco firm Philip Morris International Inc (NYSE:PM) on the back of the optimism, now dubbing the firm a ‘buy’.
“Investors are at risk of structurally under-valuing this evolving segment,” Citi wrote, referencing next-generation products such as vapes.
“We believe the market is failing to adequately value the group’s future growth and cash-flow prospects.”
Citi forecast that Philip Morris could pen a compound annual growth rate of around 16% among its next-generation products until 2027.
The stock is trading at a 26% discount to US staples stocks meanwhile, Citi noted, as new alternative products look poised to “contribute meaningfully” to the industry.
Philip Morris rival British American Tobacco PLC (LSE:BATS) rose 0.8% to 2,592p on Tuesday.