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Re: JUULIf you've read my posts over the past month or so, I think I already mostly answered this question, specifically in the one posted on 6/24. But I actually don't see the current situation as one where MO is going from one crisis to the next. Instead, what I see is that longer term storm clouds are forming about as expected, but it's unclear how MO will weather them over time, given where they are today. On the positive side, MO's current PE is low, and unlike most US companies, they are immune from negative currency impacts. And that negative currency is growing by the day given the hyper-strength of the US dollar. That makes it a very good time to be an all US dollar company. On the negative side, I have one shorter term concern and three longer term concerns. The shorter term concern is the strength of the US tobacco consumer given a weakening US economy and the high price of gasoline. The concern is obviously that significant numbers of customers might abandon Marlboro and switch to cheaper discount brands or other substitutes (including black market products). Conversely, things might stay OK if consumers see the price of everything else going up, making high cigarettes prices not look so bad in comparison. But overall, consumers can't spend money they don't have, and when gasoline fill-ups now cost double what they were a little over a year ago, there obviously is less money left for premium cigarettes. We'll see how this impacts the next couple of years, but MO has faced this problem numerous times in the past and always eventually managed through it. So if that was the only major issue facing MO, I wouldn't be particularly worried, and the share price would be attractive for a longer term buy. However, the longer term concerns are much more important. They won't impact MO's profits much for the next few years, but could eventually threaten MO's dominance of the US market and therefore significantly reduce profits in out years. Those three longer term concerns can be largely boiled down to regulation, innovation, and competition. And they obviously overlap. Your question is about regulation, specifically nicotine regulation. This area is probably the one I worry about the least. The FDA may make new rules about nicotine, menthol, JUUL, or even other areas. But rules typically take a lot of time to formulate and implement, and then often get bogged down in courts for even more time. And elections happen in between, and oftentimes priorities change. And the area that MO has always been good at is litigation and politicking. The JUUL ban is perhaps the one regulatory action that could happen much sooner. But that is the least threatening to MO, as I've speculated that MO might even want out of their JUUL investment if they think they're better off on their own in e-vapor. Overall, I think that regulation changes will be manageable to MO, and they might even be able to use them to their advantage. Innovation is a bigger concern, since MO has never shown they can do it well. They failed at moist snuff before buying UST. They failed at e-vapor before buying part of JUUL. They ignored Swedish Match in oral nicotine pouches and gave them a huge lead, and had to buy "on!" to just compete. And they now seem to have botched the IQOS licensing agreement with PM. Which leads to my biggest longer term concern - competition. If you assume that all these new innovative products are just niche products and that cigarettes will continue to dominate nicotine sales in the US, then MO is sitting pretty, and these other companies have wasted a bunch of money developing those new products. However, I don't think that. I think that e-vapor, oral nicotine, heat-not-burn, & likely others will eventually come to dominate the market. Won't be in the next few years, but I think it is very possible that sizable dents will be made in the next 4-7 years. The rate of US high school students that reported smoking cigarettes in 2021 was down to a record low of just 1.9%. Yes, there are plenty of legal aged adults (currently 12.5% in the US, or around 30 million people) that still smoke cigarettes that will live several decades yet, and keep smoking Marlboros. But demographics alone show it's very likely the number of US smokers will continue to dwindle. Assuming that happens, the only way for MO to survive in the longer term is to have competitive nicotine products in those areas that they can still charge premium prices versus their competitors. And that is the big question mark, with the biggest threat likely coming from IQOS, which is already that type of product internationally. That threat will likely keep MO's share price low unless/until the future looks more promising for them in RRP's. |
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Msg # | Subject | Author | Recs | Date Posted |
13253 | Re: JUUL | Redtopper2 | 0 | 7/12/2022 8:34:04 PM |