The News Keeps Breaking Big Tobacco's Way

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Last week, Big Tobacco players Altria (NYSE: MO  ) , Lorillard (NYSE: LO  ) , and Reynolds American (NYSE: RAI  ) closed out a 13-year legal battle with a victory.

These tobacco companies and others were sued by the city of St. Louis and 37 area hospitals for nearly $455 million in a bid to recover costs from 1993 to 2010 of treating smoking-related illnesses for patients who were unable to pay. The hospitals claimed that the industry had purposely produced an "unreasonably dangerous" product, a move that had increased spending for unreimbursed tobacco-related health care.

The verdict was a win for investors in tobacco companies, which have ultimately prevailed in the three health-care recovery cases that have come to trial. In the two prior cases, one resulted in the jury siding with the defense in a 1999 Ohio case, and the other awarded limited damages in New York in 2001 -- a decision that was reversed on appeal in 2004. According to Altria, 17 state and federal appellate courts have rejected claims to recover health-care costs from smokers.

Altria has also been busy in the Sunshine State, too. Litigation of thousands of Florida cases is ongoing following the decertification of a class action lawsuit in 2006. In March, Altria revealed that in 11 of 17 follow-on trials, it had either won or had a mistrial and was still busy appealing the remainder.

But despite the ongoing litigation, Big Tobacco companies have still proven to be prodigious generators of cash. Altria and Lorillard scored operating margins around 40% over the last four quarters, while Reynolds was no slouch either, coming in at 31%.

Jim Royal, Ph.D., does not own shares in any company mentioned here. Motley Fool Options has recommended writing puts on Lorillard. The Fool owns shares of Altria. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (1)

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  • Report this Comment On May 04, 2011, at 6:13 PM, xetn wrote:

    The hospitals kill an average of over 100000 patients per year from misdiagnoses, wrong medications, etc. Perhaps we should sue all of them; you know, a class action on behalf of everyone. (Tongue firmly in cheek).

  • Report this Comment On May 04, 2011, at 7:39 PM, JLL1952 wrote:

    Two wrongs do NOT make a right. The comparison is a false one.

    Tobacco companies kill 480,000 people every year by selling a known lethal product simply to make huge profits. They do this intentionally knowing what they are doing. Their employees don't care, as long as they make huge profits. Their lobbyists spend hundreds of millions of dollars to influence state and federal policymakers to protect those profits. Their marketing departments develop campaigns to hook our kids whom they refer to as "replacement smokers" for people who die or quit.

    Hospitals make unintentional mistakes that result in deaths but they, unlike Big Tobacco, ARE addressing these issues and attempting to change this through many efforts. They are not in the profit making business - and many are just trying to keep their doors open to serve local communities. Hospital employees care about their patients and their health.

    Before you start pointing fingers, look at the whole picture.

  • Report this Comment On May 04, 2011, at 7:51 PM, EquityBull wrote:


    The flip side is that people smoke tobacco knowing they are using a lethal product. Nobody puts a gun to anyone's head these days and forces them to smoke. Also I would doubt anybody who starts does not know the risks. They are all over the packs and effects are widely known to the public. In this world if you are an adult you can do what you want as long as it is legal and our government has said tobacco is legal so there you have it.

    That said I am not a smoker or tobacco user and can't stand it but it is my right to stay away from it just as it is others rights if they want to puff it until they get sick from it. Plenty of other stuff that is legal that we know is bad for us that people take and do enormous harm like food in excess

  • Report this Comment On May 08, 2011, at 9:19 PM, tedkelly27 wrote:

    I agree, it's not like they were tricked, even in the 1930's there were warning about the health risks of smoking.

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10/28/2016 4:01 PM
MO $65.88 Up +1.45 +2.25%
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