Opinions Vary on Impact of New FDA Cigarette Warning Labels (RAI, LO, PM)

If you have seen the graphic images that will go on cigarette packages late in 2011, you might think that the tobacco companies have finally met their match.  The graphic images are intended to encourage people not to smoke. At least some experts believe that the labels will not have much of an impact on tobacco stocks.

Zacks pointed out this morning that the new label is “already being questioned in a federal lawsuit filed by some of the major tobacco companies.”  It noted, Reynolds American Inc. (NYSE: RAI) and Lorillard Inc. (NYSE: LO), are arguing that these warnings are far more prevalent than the brand names on each pack of smokes.  It also said, “All the tobacco giants are experiencing the pressure of the new ruling of FDA.”

Reynolds American and Lorillard have Zacks #2 Rank, which translate to a short-term ‘Buy’ ratings; Philip Morris holds a Zacks #3 Rank, effectively a short-term ‘Hold’ rating.  Earlier this month came a report from Morgan Stanley, where it cut Lorillard’s rating to Equal-Weight and raised Reynolds to Equal-weight.

JON C. OGG