Wall Street investors are reportedly flooding back into tobacco stocks, erasing years of ethical boycotts as the industry’s aggressive pivot toward smoke-free products blurs old moral lines.
For nearly a decade, pension funds and major endowments blacklisted cigarette makers under strict mandates.
But that taboo is quickly going up in smoke. Tobacco companies generating massive sales from non-combustible alternatives are “rejoining polite society” and earning premium stock market valuations from returning institutional capital, the Wall Street Journal reported Thursday.
The shift gained fresh momentum when the Food and Drug Administration gave the green light for Philip Morris to market 20 variants of its Zyn nicotine pouches as a less harmful alternative to traditional smoking. The June 30 decision noted a reduced risk of lung cancer, stroke and heart disease for people who use the pouches, which go between one’s gums and cheek but don’t contain tobacco.
The move came just weeks after New York Gov. Kathy Hochul signed a new 75% wholesale tax into law on alternative tobacco products — the so-called “Bro Tax.”
Still, crossing the FDA’s regulatory moat prompted immediate action from major investment banks. Morgan Stanley recently raised its price target on Philip Morris to $200, highlighting the upcoming rollout of Zyn Ultra.
“The developments increase our confidence,” Morgan Stanley analysts wrote in a briefing to clients, adding that they see an increased probability for their $250 bull-case scenario as smoke-free alternatives dominate Philip Morris’ revenue.
Bank of America similarly backed the stock, pushing its target to $209 on high-margin smokeless execution.
Philip Morris generates about 41% of its sales from non-combustible products, the Journal noted, adding it now trades at a massive 70% premium over rivals still heavily dependent on sales of old-fashioned smokes.
While Philip Morris has captured the premium valuations, rival British American Tobacco, or BATm is executing a sweeping, tech-driven transformation to reclaim market share.
The maker of Lucky Strike and Vuse vapes reportedly plans to eliminate 9,000 global jobs — nearly 19% of its workforce — by outsourcing 3,500 roles to Accenture and deploying artificial intelligence to automate back-office operations.
The workforce cuts aim to harvest $800 million in annual savings by 2028, freeing up capital to aggressively fund BAT’s smokeless product expansion.
Barclays analyst Pallav Mittal noted that the “scale of this workforce reduction is unexpected.”
Nevertheless, the strategic shift keeps analysts bullish.
Experts at Jefferies and UBS recently reiterated buy ratings on BAT, joining a solid majority of Wall Street analysts who rate the stock a strong buy as the firm pushes to double its share of the US oral nicotine market.
As combustible cigarette volumes maintain their decades-long decline, the industry’s rapid evolution appears to be permanently redrawing the boundaries of institutional investing.
“The FDA authorization for Zyn … is a significant positive,” Morgan Stanley analysts concluded in their recent note upgrading the sector. “It provides a clear regulatory pathway and validates the harm reduction potential increasing our confidence in the company’s ability to drive accelerated smoke-free growth.”
