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About the Industry
The Zacks Tobacco industry includes companies that manufacture and sell cigarettes as well as tobacco and nicotine-based products, such as cigars, snuffs and oral tobacco. Some companies also offer RRPs, such as e-cigarettes, vaping and heat-not-burn variants. A few of the firms are engaged in making devices and attachments needed in vaping and heat-not-burn products. Most products manufactured by the tobacco industry participants fall under the strict vigilance of the U.S. Food and Drug Administration and are required to follow the permissible levels of nicotine in manufacturing. Players in this space sell products mostly through large retailers, distributors, convenience stores, drugstores, wholesalers and grocery chains. Some international tobacco firms also operate in the country through subsidiaries.
3 Trends Shaping the Future of the Tobacco Industry
Rising Popularity of Smoke-Free Options: The growing popularity of smoke-free alternatives — such as heated tobacco, vapor products and oral nicotine — is reshaping the tobacco industry. Rising health awareness and stricter smoking regulations are prompting consumers to seek safer, more modern options for nicotine consumption. These RRPs, marketed as safe due to their innovative formulations and alternative consumption methods, are gaining popularity as consumers seek healthier options and smoking cessation solutions. Major tobacco companies are investing heavily in expanding their presence in this category, focusing on innovations that improve user experience and energy efficiency. As a result, the tobacco industry has seen significant revenue growth from RRPs and smoke-free products, with continued demand expected to fuel positive growth and transformation within the industry.
Pricing Power: Tobacco companies continue to rely on strong pricing power to offset declining cigarette sales volumes. Due to the addictive nature of cigarettes, consumers tend to remain relatively insensitive to price increases, enabling companies to implement regular price hikes without significantly impacting demand. This pricing strategy has helped industry players maintain strong revenues despite the ongoing drop in cigarette sales, reinforcing the profitability of traditional tobacco products.
Challenges in Cigarette Sales Volumes: The tobacco industry is facing significant challenges in cigarette sales volumes due to persistent inflation and economic pressures that have altered consumer spending behavior. Rising costs and shifts toward smoke-free alternatives are contributing to the decline in cigarette consumption. In addition, regulatory restrictions on sales, advertising, and manufacturing, stemming from health concerns over nicotine, are further impacting sales volumes. Since traditional cigarettes still represent a major source of revenues for tobacco companies, the ongoing decline in cigarette sales poses a considerable concern for the industry.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Tobacco industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #65, which places it in the top 27% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Since the beginning of April 2025, the industry’s consensus estimate for current financial year earnings has increased 2.2%.
Before we present a few stocks that you may want to consider for your portfolio, let’s look at the industry’s recent stock-market performance and valuation picture.
Industry vs. Broader Market
The Zacks Tobacco industry has outperformed the Zacks S&P 500 composite and the broader Zacks Consumer Staple sector over the past year.
The industry has gained 63.8% over this period compared with the broader sector and the S&P 500’s rise of 3.2% and 9.8%, respectively.
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing consumer staple stocks, the industry is currently trading at 15.78X compared with the S&P 500’s 21.89X and the sector’s 17.62X.
Over the past five years, the industry has traded as high as 15.78X, as low as 9.03X and at the median of 10.89X, as the chart below shows.
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3 Tobacco Stocks to Keep a Close Eye On
Altria Group: This Zacks Rank #2 (Buy) company is making notable progress in its transformation toward a smoke-free future. By prioritizing RRPs, driving innovation and ensuring regulatory compliance, Altria is reshaping its business model for long-term sustainability. A cornerstone of this transition is the company’s fast-growing oral nicotine pouch brand, on!, which continues to gain market share and serve as a key growth driver. Through its “Optimize and Accelerate” initiative, Altria is streamlining operations, boosting efficiency, and leveraging strong pricing power to support profitability. Backed by the enduring strength of legacy brands like Marlboro and its expanding smoke-free portfolio, Altria is well-positioned for continued growth in the evolving tobacco landscape. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for MO’s current financial year earnings per share (EPS) has moved up by a couple of cents in the past 30 days to $5.37. Shares of Altria have surged 29.3% in the past year.
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Philip Morris International: This Zacks Rank #3 (Hold) company is undergoing a transformative shift as it pivots from traditional cigarettes to a smoke-free future. The company has emerged as a global leader in RRPs, leveraging innovation, strategic acquisitions and robust pricing power to accelerate its transition. With flagship smoke-free offerings like IQOS and ZYN gaining strong market traction, Philip Morris is actively reshaping its product portfolio to align with evolving consumer preferences and global health trends. This strategic evolution not only reinforces its commitment to a more sustainable and healthier future but also supports resilient financial performance.
As Philip Morris advances toward its goal of becoming a majority smoke-free company, it continues to set industry benchmarks in innovation, sustainability and leadership within the global tobacco market. The Zacks Consensus Estimate for PM’s current financial year EPS has remained unchanged in the past 30 days at $7.47. Shares of Philip Morris have gained 81% in the past year.
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Turning Point Brands: This Zacks Rank #3 company is gaining momentum as a leading manufacturer, marketer, and distributor of branded consumer tobacco and alternative smoking products. The company’s flagship brands, including Zig-Zag and Stoker’s, are driving growth through innovative product launches and expanded distribution channels. Its modern oral nicotine products are also experiencing strong consumer and retail demand, reflecting the rising popularity of smokeless tobacco alternatives. Turning Point is capitalizing on its well-established sales network and strategic partnerships to enhance retail visibility and cross-sell its product portfolio. With a focus on innovation, brand building, and customer engagement, TPB is well-positioned to capture greater market share in the evolving RRPs segment.
The Zacks Consensus Estimate for TPB’s current financial year EPS has remained unchanged at $3.36 over the past 30 days. Turning Point Brands shares have skyrocketed 132.8% in the past year.
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This article originally published on Zacks Investment Research (zacks.com).
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