Wells Fargo analyst, Bonnie Herzog, says to buy into tobacco following a report on potential FDA ban on menthol cigarettes. Late Friday afternoon (11/9), the WSJ reported that the FDA plans to pursue a ban on menthol combustible cigs this week according to senior agency officials, possibly announcing a move in conjunction with its aggressive actions to address the e-cig youth "epidemic". Herzog continues to believe an outright ban on menthol is very unlikely as the FDA has been very clear that it will adhere to a science-based approach to evaluating/acting on menthol.

Menthol cigs in the U.S. represent ~35% of total industry volume. British American Tobacco's (NYSE: BTI) Reynolds has the greatest share and Wells Fargo estimates ~55% of its volume in the U.S. is menthol. Wells Fargo estimates British American Tobacco (NYSE: BTI) ~21% of Altria Group's (NYSE: MO) volume is menthol representing ~18% of its total profits (MO’s share of the menthol category is just under 30% & Marlboro’s share of menthol ~22%). We estimates ~20 of Imperial’s volume is menthol.

Analyst Comments FDA

Apple, Goldman Sachs send Wall Street tumblingNovember 12, 2018 8:11 AM Altria Group (MO) option implied volatility flat on reports the FDA will propose ban on menthol cigarettesNovember 12, 2018 5:36 AM British American Tobacco (BTI) call put ratio 1 call to 6.1 puts on reports the FDA will propose ban on menthol cigarettesNovember 12, 2018 5:34 AM British American Tobacco (BATS:LN) (BTI) PT Lowered to GBp4,000 at BarclaysNovember 12, 2018 3:27 AM FDA to Propose Ban on Menthol Cigarettes - WSJNovember 9, 2018 3:45 PM Juul to Stop Sales of Most Flavored E-Cigarettes in Retail Stores - DJNovember 9, 2018 12:18 PM Oil slide, China worries send Wall Street tumblingNovember 9, 2018 7:36 AM FDA to announce a ban on the sale of flavored e-cigarettes in convenience stores and gas stations - Washington PostNovember 8, 2018 5:37 PM