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MO CAGNY Cowen.... MO. We maintain our Market Perform Rating on MO given uncertain U.S. volume expectations and modest EPS growth driven by need to reinvest in RRPs. RRPs. As part of MO’s plan to develop reduced risk products as part of its long-term vision, the company sees an opportunity to lean into its insights to capture new consumers, particularly as exclusive new category usage skews toward younger cohorts, while expanding distribution. For example, management indicated that in early test markets, 39% of iQos purchasers’ preferred cigarettes come from non-MO brands. In addition, management noted that female consumers typically under-index in traditional MST (5% representation vs. 50% in cigarettes) but have a higher preference for modern oral at 25%. In 2021, MO looks to expand RRP distribution, with on! growing ACV to 90% of oral tobacco volumes (currently ~67%) while iQos expands into (1) NC, SC, VA, and GA state-wide, (2) Northern Virginia metro market, and (3) three new metro areas in 2H21. strong profitability and growth in its core tobacco segments, while reinvesting in Marlboro. Having generated solid operating growth in these units over the past decade (+5.9% in smokeable and +7.6% in oral tobacco, on average), we look for the company to continue leveraging its revenue growth management capabilities to generate strong price/mix contributions. While MO remains cautious on volume growth (no formal guidance for 2021), it indicated that the excise tax environment remains solid, with additional states looking at SET increases to offset COVID-19 deficits. |
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