Goldman Sachs “bullish” on e-cigs

Goldman Sachs analysts said Aug. 7 that they remain bullish on category growth prospects for e-cigarettes, which “have the potential to transform the tobacco industry.” However, they noted that not all tobacco companies would benefit equally, as e-cigarette growth could simultaneously accelerate the decline in conventional cigarettes.

E-cigarettes currently account for less than 1 percent of total U.S. industry sales. Goldman Sachs believes they could reach 19 percent of sales and 10 percent of total industry volume by 2020 at the expense of conventional cigarettes, whose share of total tobacco industry profit pool is estimated to shrink to 63 percent by 2020 from 82 percent today.

E-cigarette sales have doubled in each of the past two years, with continued building of awareness, trial and repeat usage, the analysts said, adding that they appear “positioned to extend the duration of the tobacco industry’s profit generation and even accelerate industrywide profit growth.”

E-cigarettes also have the potential to generate higher profit per cigarette-equivalent pack as they are not subject to Master Settlement Agreement payments and will likely have lower taxes, the analysts noted.

The analysts said they see Lorillard as best-positioned in e-cigarettes because of its “first-mover advantage” and limited cannibalization on its cigarettes, while Altria has the most at risk given its 55 percent share of cigarette industry profit.