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The Zacks Analyst Blog Highlights:Philip Morris International, Reynolds American, British American Tobacco, Altria Group and Kirkland's

CHICAGO, March 20, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Philip Morris International Inc. (NYSE:PM-Free Report), Reynolds American Inc. (NYSE:RAI-Free Report), British American Tobacco plc. (AMEX:BTI-Free Report), Altria Group Inc. (NYSE:MO-Free Report) and Kirkland's Inc. (Nasdaq:KIRK-Free Report).

Zacks Investment Research, Inc., www.zacks.com.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Wednesday's Analyst Blog:

EU Council Supports Tobacco Directive

The tobacco industry has been facing the brunt of worldwide anti-tobacco campaigns which are prompting governments to impose restrictions on the sale of tobacco products. The industry was hit hard again when 'The New Tobacco Products Directive' endorsed by the European Parliament in Feb 2014 received a green signal from the Council of European Union (EU) on March 14, 2014.

The Directive is a revised version of the original Tobacco Products Directive issued in 2001. The revision was made in order to make tobacco products less attractive to young smokers in the region. The new directive imposes stricter rules on the sale of tobacco products in the EU region.

The new rule bans the sale of flavored cigarettes and roll-your-own-tobacco in EU regions. However, member states have the option to exempt products like 'Other Tobacco Products' like cigars and cigarillos from the ban.

Moreover, the directive requires the tobacco companies to include both pictorial and text warnings on the cigarette packs to dissuade smokers. The law also requires the warning to cover more than 65% of both the front and back covers. The new rule also bans any misleading labeling containing words like 'natural' and 'organic' on the packages.

Member states have also been allowed the authority to ban online sales of tobacco products in their respective regions.

Moreover, the new rule states that e-cigarettes, with nicotine strength of more than 20 milligrams per milliliter, would need authorization as a medicine. Furthermore, curative or preventive qualities of these products need to be proved. E-cigarettes below this level will face the same regulations as conventional tobacco products if their usage as a medicinal product cannot be proved.

The Directive is expected to be enforced in May, 20 days after its publication in the Official Journal of EU. Member states are required to incorporate the new directive into their national laws within two years and apply them from the end of the period. 

These rules will pose a problem for the tobacco majors like Philip Morris International Inc. (NYSE:PM-Free Report), Reynolds American Inc. (NYSE:RAI-Free Report), British American Tobacco plc. (AMEX:BTI-Free Report) and Altria Group Inc. (NYSE:MO-Free Report). The worldwide anti-smoking campaigns are increasingly forcing these companies to rely on packaging to build brand loyalty and grab consumer attention, especially after the government curbed advertising in magazines, billboards and TV. These efforts may fall apart once the above mentioned stricter regulations come into force.

Philip Morris, which carries a Zacks Rank #4 (Sell), opines that the new rule will disrupt the tobacco market and encourage illicit trade.

Kirkland's Downgraded to Strong Sell

Zacks Investment Research downgraded Kirkland's Inc. (Nasdaq:KIRK-Free Report) to a Zacks Rank #5 (Strong Sell) on March 19 following disappointing fourth-quarter and fiscal 2013 earnings results last week.

Why the Downgrade?

Kirkland's witnessed sharp downward estimate revisions since it reported disappointing fourth-quarter 2013 results.

On March 14, Kirkland's reported fourth-quarter earningsof 69 cents per share down 15.9% from 82 cents in the prior-year quarter. The decline was caused by soft sales resulting from bad weather during the holiday season.

Earnings beat the Zacks Consensus Estimate of 67 cents per share by 2.9% and slightly surpassed management's guidance of 66 to 68 cents, which was lowered from previous guidance of 77 to 82 cents as announced on the preliminary results in Feb 2014 due to soft preliminary results.

Net sales declined 4.2% to $156.1 million compared with $162.9 million in the fourth quarter of fiscal 2013. Sales fell short of management's expected range of $159–$162 million. Although the company witnessed a strong start to the quarter with solid November and record Black Friday sales, rough weather and declines in comps during December and January offset the initial gains. Sales missed the Zacks Consensus Estimate of $157.0 million by 5.7%.

Same-store sales remained flat year over year but fell short of management's guidance of a comp growth of 2% to 4% announced during the third-quarter earnings conference call.

Almost all the estimates were revised downward following weak results for fiscal 2013. Further, we do not expect any improvement in the situation in the upcoming quarter as there is a consistent slowdown in the home building sector which will indirectly affect the company's top line.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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