Morgan Stanley has identified leading tobacco companies that it views as best positioned in the sector's move toward smoke-free nicotine delivery systems. The firm's review emphasizes execution in alternative categories - such as heated tobacco, nicotine pouches, and e-vapor devices - while also accounting for each company's continued exposure to traditional combustible cigarettes.
Sector context and methodology
The analysis centers on firms demonstrating measurable progress in smoke-free formats while maintaining scale in combustibles. Morgan Stanley places a premium on companies that both expand choice for consumers switching away from cigarettes and leverage existing sales and distribution infrastructure to accelerate adoption of new products.
1. Philip Morris International
Philip Morris International occupies the top spot in Morgan Stanley's ranking after management updates on the company’s smoke-free growth strategy. Over the past 11 years the company has built a smoke-free business worth $17 billion across more than 100 markets. Despite that progress, combustibles still account for over 80 percent of global nicotine volumes.
Philip Morris pursues a multi-category approach that spans heat-not-burn technology, nicotine pouches, and e-vapor solutions. The firm reports stronger adoption where multiple smoke-free options are available: sales have grown by over 15 percent in 52 markets where multi-category portfolios are present versus roughly 10 percent growth in markets limited to a single smoke-free product category. Morgan Stanley highlights IQOS as an anchor for distribution and merchandising - a presence that can support cross-selling of other smoke-free products such as Zyn and VEEV and that helps create a brand halo when those products are merchandised alongside IQOS.
Philip Morris has also refined its strategy for BONDS by IQOS, a lower-cost heat-not-burn platform intended to appeal to consumers seeking an experience closer to stronger cigarettes. Pilot programs in four Italian cities and in Indonesia have produced encouraging results; the company has signaled it will decide later this year whether to pursue a broader rollout.
In recent company reporting, Philip Morris disclosed fourth-quarter 2025 results with revenue of $10.4 billion, a figure that slightly exceeded analyst forecasts. Stifel called out stronger-than-expected volume growth in the quarter, and both Stifel and UBS subsequently raised their price targets for the stock.
2. Altria
Altria is ranked second by Morgan Stanley after management updates from current CEO Billy Gifford and CEO-elect Sal Mancuso. The company estimates that total U.S. nicotine-equivalent volumes expanded at about 2 percent per year from 2020 through 2025. Over that interval, the share of smoke-free products in industry volumes moved from roughly 20 percent to 50 percent, a shift attributed largely to disposable vaping products and nicotine pouches.
Altria sees substantial opportunity in the U.S. market, citing survey data that nearly half of the 30 million U.S. smokers say they are interested in smoke-free alternatives. The company plans a national launch of on! PLUS nicotine pouches, with distribution expected by the end of the first half following FDA authorization. Early consumer feedback in Florida, North Carolina, and Texas has been described as encouraging. On the combustible front, Altria is preparing to introduce Marlboro Cowboy Cut, a product aimed at retaining value-conscious smokers within the Marlboro portfolio.
Altria's fourth-quarter 2025 results showed revenue of $5.08 billion, which came in ahead of analyst forecasts, while earnings per share of $1.30 were slightly below expectations.
What this means for markets
Morgan Stanley's focus on execution across smoke-free categories highlights differences in go-to-market strength among large tobacco companies. Investors and market observers should watch product rollouts, pilot outcomes, and distribution scale as key drivers of future revenue mix and valuation for companies in the sector.