Winners and losers in the tobacco sector under a Trump Administration

The election results have led to some minor gains in the tobacco sector as analysts weigh the impact of a new administration. Philip Morris International (NYSE:PM) was up 1.05% in premarket trading in the U.S., while Altria (NYSE:MO) tracked 0.55% higher and British American Tobacco p.l.c. (NYSE:BTI) rallied 2.27%.

UBS sees the Republican win as a slight positive for tobacco stocks in its first post-election analysis. Analyst Faham Baig reminded investors that Republican control has historically been seen as a positive for U.S. tobacco, due to the likelihood of reduced regulation. In addition, the Trump campaign has proposed lowering the U.S. corporate tax rate to 15% for companies that make their products in the U.S.

Baig also noted that the key challenge facing the U.S. tobacco industry is the growth of grey-market flavored disposable vapes, which are predominantly from China. However, the firm’s view is that a Republican win may not alter that development because Trump has pledged support for vaping and the small businesses that sell disposable vapes and because there is now a rising number of new nicotine pouches, including an upcoming launch from Tucker Carlson. It was also highlighted that Trump’s FDA commissioner put forward a comprehensive regulatory plan to lower nicotine in cigarettes to non-addictive levels in 2017.

Another major factor for the tobacco sector is the likelihood of rising interest rates, which is considered a relative negative for dividend-paying tobacco stocks. FX headwinds from a stronger U.S. dollar are also seen as a potential drag on earnings.

UBS sees a potential tailwind for Japan Tobacco (OTCPK:JAPAY) (OTCPK:JAPAF) if a ceasefire in Ukraine is worked out by a Trump Administration.