Morgan Stanley ha rebajado la recomendación que tiene en Altria, y prefieren a Philip Morris, que cotiza al mismo múltiplo (EV/EBITDA), pero no tiene los problemas regulatorios de los USA:
Our forecast of accelerated cigarette industry volume declines, a deceleration in EPS growth to LSD, and FDA risk result in a 2:1 Bear:Bull skew. Bear case risks include lower pricing power and higher leverage. We downgrade MO from Equal-weight to Underweight and reduce our PT by 17% to $45.
Reducing our forecasts to low-single-digit EPS growth starting in 2019. MO’s reliable business algorithm is at risk from shifting demographic trends, category disruption, and harsh FDA regulatory objectives. Our demographic model points to a ~6% annual cigarette volume declines over the next decade due to lower smoking prevalence and a shift towards older and Hispanic smokers. We see risk to sustaining +4-5% cigarette net pricing due to an increasing mix of lower income smokers and competition from cheaper reduced risk products. Weaker topline growth (MSe -0.7% 2019-21E), limited additional cost savings, higher leverage, and lower share buybacks are should drive LSD EPS growth.
A large-scale and expensive investment in JUUL despite limited financial and regulatory visibility. JUUL gives MO exposure to a rapidly growing product and offers some hedge to its declining core business. However, MO’s $12.8 bn investment came at an expensive valuation ($38 bn; MSe ~100x EV/EBITDA) considering JUUL’s reduced financial visibility due to FDA flavor restrictions at retail (~60% of JUUL sales) and potential for more severe FDA regulation to come. Importantly, MO’s plan to provide JUUL with shelf space and marketing support enhances JUUL’s competitive threat. We estimate that JUUL equity income will only partially offset MO’s lost cigarette profitability. MO should benefit from JUUL’s international expansion, but JUUL faces lower nicotine limits and fewer competitive barriers to entry outside of the US.
Reducing PT to $45 and see greater likelihood of our Bear (-40%) than Bull (+18%) case. Our EPS estimates are ~4% and ~9% below consensus for 2019/2020E reflecting weaker topline growth (volumes/net pricing -5.5%/+4.2%), moderate cost savings, higher interest expense, and the absence of share buybacks, driving 1.4%/2.9% EPS/dividend CAGR from 2018-2023. We see greater likelihood of our Bear Case (volume/price -7.8%/+3.0% 2018-23), in which FCF declines ~5% annually and trails below MO’s current dividend level by 2021, than our Bull Case – a reversion to the historical status quo. Potential for increased FDA regulation and competitive risk further limit visibility to the long-term outlook. MO is currently trading at 11.6x 2020E P/E, down from its peak of 18x in 2018. However, the stock has traded at 5.0-8.5x P/E during previous periods of heightened uncertainty.
Prefer PM (Overweight, $80 PT) to MO as EV/EBITDA is at parity. We believe PM’s recent de-rating is unwarranted as the company is not subject to many of the risks impacting US tobacco (FDA, disruption). Global cigarette fundamentals are solid, we see upside potential from IQOS, and believe PM has high visibility to HSD constant-FX EPS growth. Moreover, PM has lower leverage and opportunity to reinstate buybacks to further drive EPS growth.
Where can we be wrong? Risks to our UW thesis include MO’s ability to offset greater volume declines with above average cigarette net pricing growth and further cost savings which would drive a return to HSD annual EPS growth. In the near-term, lower gas prices could be a boost to cigarette volumes in 2019.