Altria Group Inc (MO), Philip Morris International Inc. (PM), Lorillard Inc. (LO): Might Tobacco Investors Look Elsewhere?

Lorillard Inc. (NYSE:LO) has no international exposure, having sold its international rights to Japan Tobacco years ago, giving the company a predictable nature as it is not exposed to currency fluctuations. Additionally, while its competitors are grappling with falling sales volumes, Lorillard continues to take market share from its competitors here within the U.S. and its volume of tobacco sold continues to grow – last year was the company’s tenth constitutive year of sales growth.

So far, since 2008, Lorillard Inc. (NYSE:LO) has been able to achieve faster earnings growth than Philip Morris International Inc. (NYSE:PM), even though the company sells its products solely in the U.S. market where tobacco consumption is declining.

However, the company is facing potential regulation from the FDA and any clamp down on menthol cigarettes would effectively bankrupt the company – this blanket ban is unlikely, however.

During the past five years Lorillard Inc. (NYSE:LO)’s earnings per share have grown faster than those of Philip Morris International.

Excise
Taxes are growing

There is another reason that Philip Morris could be losing its crown and that is operating income, more specifically, the company’s operating margin. Due to rising excise taxes, currency movements, and rising manufacturing costs, Philip Morris International Inc. (NYSE:PM) has a rapidly contracting operating margin, currently around 17% of revenue. Altria Group Inc (NYSE:MO), on the other hand, has an operating margin of around 25% and Lorillard Inc. (NYSE:LO) has an operating margin of 28.4% — up 1.6% from 2011.

Overall

With its crown starting to wobble, it could be time to consider turning away from Philip Morris as a long-term tobacco investment. Perhaps it would be better to invest in Altria or Lorillard Inc. (NYSE:LO), both of which appear to be companies with a stable outlook, good growth, and a steady income

The article Should Tobacco Investors Shun This Company and Look Elsewhere? originally appeared on Fool.com and is written by Rupert Hargreaves.

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