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MO vs. PMEver since the spinoff, I have always been more bullish on PM than on MO, although immunity from foreign currency fluctuation plus the US corporate income tax reduction has resulted in better profit growth for MO (in dollar terms) over the past decade. However, unless that US dollar strength continues to grow over the next decade, I don't see that repeating. MO is simply in a worse geographic situation. MO already has close to a 50% share of the US cigarette market, and close to 50% share in the oral nicotine market as well. Furthermore, the half of those markets they don't control, is made up of a majority of discount brands. So overall, MO already captures a large majority of the profits that are earned in the US nicotine market. So how does MO grow those profits? They can't market to people who don't already use nicotine due to regulations, so expanding the categories is very difficult. So any new products they introduce, whether IQOS, e-vapor, or oral nicotine, will heavily draw from their existing customers, rather than competitors. So it is nice that they say that in the test markets, 39% of IQOS users have come from competitors. But that is in select hand-picked markets, and still leaves 61% that came from their own brands. In the US, getting competitors premium smokers to switch largely means getting the 15% of Newport menthol smokers to switch to HEETS. That's a tough slog. So how about all the discount smokers in the US? Can MO switch competitors discount brand smokers to premium HEETS? Maybe, but probably very difficult without much greater excise tax savings that are passed onto the consumers in the form of lower prices. And in the US, that means laws must be changed in every state plus the federal government. The fact they have to pay a royalty to PM for HEETS as well, further complicates this strategy. At what price point could MO actually sell HEETS that discount-minded customers would buy them, while still turning a good profit for MO? And how could you segment that without having the premium paying smokers also trade down and buy lower priced HEETS? And is that even possible with HEETS largely taxed like cigarettes in the US? That leaves increased pricing as the only dominant way for MO to expand US profits. And they have done so for for many decades. I think its possible they can still eek out low single digit profit gains using pricing. But it is doubtful they can generate upper single digit annual growth using pricing alone. So that leaves them chasing things like alcohol and marijuana and JUUL. But thus far, none of their adjacency strategies has paid off. BUD just reported a pretty dismal outlook again on Thursday, and CRON is having to write down tens of millions of dollars of marijuana inventory because pricing for the products is way down in Canada. Contrast that to PM. PM has a 27% worldwide market share excluding the US and China. Now they have individual countries (such as Italy) where their market share rivals or even exceeds MO's share in the US. So they have the same issues in those certain markets. Next, there are emerging markets (such as Pakistan) where customer incomes are low and it will be difficult to even introduce IQOS. But overall they have many attractive markets where they are starting with a much lower market share and can go after competitors premium brands, often with a HEETS product that is priced below premium cigarettes due to tax savings. Which they already did with Japan, and are now doing in places like the UK for instance, where PM starts with a single digit market share. With a PE under 10, and a dividend yield of nearly 8%, MO is cheap. However, even though PM carries a significantly higher PE of 14, I'd still put new investment in PM before MO. |
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Msg # | Subject | Author | Recs | Date Posted |
13133 | Re: MO vs. PM | Rice1 | 0 | 4/20/2021 5:41:07 AM |
13138 | Re: MO vs. PM | Rice1 | 1 | 4/20/2021 1:21:42 PM |