This is a great write-up; I largely agree with everything here. Only issue I worry about is management. You touched on it in risks, but it's a bigger concern than one paragraph. This is a company that's been run by the same group of insiders for decades. They're fantastic at running a cigarette company. There's no evidence that they have any clue how to do anything else. Every Altria bull-case relies on assuming that they'll be able to capitalize on their position. Which I agree is very strong. They *should* have an easy path to transition into the new product areas you talked about. But capitalizing requires making good decisions. So far, that hasn't happened. If they'd done one thing to indicate that they have a coherent forward-looking strategy beyond "fuck it, we've got 100 billion dollars, we'll figure it out" MO would be like 40% or more of my portfolio right now.
Basically, the question is whether Altria is Yahoo or Microsoft. Right now it looks ominously like Yahoo.
Scott, thank you for your kind words. More importantly, thank you for taking the time to comment and add to the conversation.
You are 100% correct - mismanagement can spell doom.
I don't believe MO has to innovate all that much to do fairly well, considering the strength of their core business. So long as management doesn't behave recklessly, FCF generation could stay rather robust. I also think there will be some interesting opportunities regarding cap structure and possible divestitures down the line. And, even if the firm begins to resemble a melting ice cube, various attempts at napkin math can still paint some fairly positive scenarios for the equity.
I think it'll be fascinating no matter what unfolds.
How are you incorporating recent administration proposal on max nicotine levels? I know the proposal isn't until May 2023 and could very well extend beyond that with actual implications taking over 5years to actually do anything. Read your post on the JUUL news which I agree with though the market is hammering $MO as if it's a huge chunk of their business that they already haven't written down dramatically.
It's difficult to speculate on issues we have no formalized details of. This is not the first time nicotine reduction has been proposed. It seems exceedingly unlikely to occur, and as you said, the process would be drawn out for an extended period of time.
If/when more details come out, I will be writing on it, so stay tuned. Thanks for reading.
Jesus christ, what a write-up, gonna share this on Sunday, thanks.
Thank you for the kind words, Conor. I'm a big fan of your work.
This is a great write-up; I largely agree with everything here. Only issue I worry about is management. You touched on it in risks, but it's a bigger concern than one paragraph. This is a company that's been run by the same group of insiders for decades. They're fantastic at running a cigarette company. There's no evidence that they have any clue how to do anything else. Every Altria bull-case relies on assuming that they'll be able to capitalize on their position. Which I agree is very strong. They *should* have an easy path to transition into the new product areas you talked about. But capitalizing requires making good decisions. So far, that hasn't happened. If they'd done one thing to indicate that they have a coherent forward-looking strategy beyond "fuck it, we've got 100 billion dollars, we'll figure it out" MO would be like 40% or more of my portfolio right now.
Basically, the question is whether Altria is Yahoo or Microsoft. Right now it looks ominously like Yahoo.
Scott, thank you for your kind words. More importantly, thank you for taking the time to comment and add to the conversation.
You are 100% correct - mismanagement can spell doom.
I don't believe MO has to innovate all that much to do fairly well, considering the strength of their core business. So long as management doesn't behave recklessly, FCF generation could stay rather robust. I also think there will be some interesting opportunities regarding cap structure and possible divestitures down the line. And, even if the firm begins to resemble a melting ice cube, various attempts at napkin math can still paint some fairly positive scenarios for the equity.
I think it'll be fascinating no matter what unfolds.
How are you incorporating recent administration proposal on max nicotine levels? I know the proposal isn't until May 2023 and could very well extend beyond that with actual implications taking over 5years to actually do anything. Read your post on the JUUL news which I agree with though the market is hammering $MO as if it's a huge chunk of their business that they already haven't written down dramatically.
It's difficult to speculate on issues we have no formalized details of. This is not the first time nicotine reduction has been proposed. It seems exceedingly unlikely to occur, and as you said, the process would be drawn out for an extended period of time.
If/when more details come out, I will be writing on it, so stay tuned. Thanks for reading.