Jefferies touts big tobacco as 'recession proof,' saying smokers aren't fazed by illness risks and the boredom of lockdowns will encourage more smoking

Thomson Reuters

If smokers are willing to take risks with cancer, they will likely keep smoking through the coronavirus outbreak, according to Jefferies analysts.

• Jefferies analysts said tobacco companies should perform well during a recession, even during the coronavirus outbreak.
• "If smokers are willing to take their chances with cancer and the various other serious health risks with cigarettes, we think they are likely to be little fazed by COVID," the analysts wrote in a research note publish Thursday.
• People may turn to cigarettes if they are struggling with boredom and depression during home quarantines, analysts said.
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Jefferies analysts called big tobacco "recession proof" this week and said they don't expect people to stop smoking amid the coronavirus outbreak.

The analysts said they expect smokers to ignore warnings about COVID-19, the upper-respiratory disease caused by the coronavirus, because of their willingness to take chances with cancer.

"Smokers are well aware of the risks associated with tobacco products, yet continue smoking anyway," the analysts wrote in research note published Thursday. "Even after large and disturbing graphic health warnings in the majority of markets worldwide, volumes have been little impacted. If smokers are willing to take their chances with cancer and the various other serious health risks with cigarettes, we think they are likely to be little fazed by COVID."

In fact, the outbreak could encourage more smoking, as people confined to their homes struggle with boredom and depression, analysts wrote.

"It is generally accepted, and supported by studies, that boredom is a factor that influences smoking," the analysts wrote. Stress, anxiety, and depression, "which many may also be experiencing in the current environment... is also known to be associated with greater odds of persistent smoking."

The analysts recommended as a top stock pick the company British American Tobacco, which owns brands including Camel, Lucky Strike, Newport, and Pall Mall, in a research note published on Wednesday.

Following that recommendation, analysts wrote that they were "surprised by the lack of investor enthusiasm" in big tobacco.

Big tobacco is a "sector to own through a recession," analysts wrote. "Post 2008, tobacco delivered robust top line and outperformed wider staples and the market on earnings and price."

Vaping, however, could see declines during the outbreak, Jefferies analysts said.

Cigarette smokers are less likely to adopt vaping if they think the respiratory risk is the same as vaping, and new nicotine users may be less likely to start vaping due to potential health impacts.

"Think teenagers in the US," analysts wrote. If "they don't smoke already they will be much more conscious of the health impact."

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