In short: Named with Altria as a "sin stock" whose valuation is shaped by exclusionary investment mandates — the demand side, not the fundamentals, sets the multiple.
5:10— A good example of that would be sin stocks like a Philip Morris or Altria today, right? Some people have investment mandates that prohibit them from owning tobacco stocks. All else equal, that should lower the price of Altria relative to its competitors, reduce the speculative aspect associated with it and create conditions under which higher outperformance can be achieved for each unit of fundamental performance.
In short: Ranked #5 — "clearly the best company… they should be number one. Except they're too expensive": ~4% FCF yield and negative DCF upside even modelling its 9–11% EPS growth target. 42% smoke-free (IQOS, Zyn), top credit, reinvesting instead of buybacks — the right order, and the best performer since 2020.
Philip Morris sells Marlboro outside the US and leads the shift away from cigarettes with the IQOS heated-tobacco device and Zyn pouches — about 42% of its business is already smoke-free. It has the best credit, top-two profitability and has been the best stock since 2020, because it reinvested in new products rather than buying back shares.
Lukacs calls it "clearly the best company" that "should be number one," but the price already reflects that: only about a 4% free-cash yield, and even modelling its 9–11% earnings-growth target his valuation shows the shares worth less than today. Great business, wrong price.
16:41And with that, looking at Philip Morris. So, this is clearly the best company out there. They should be number one. Except they're too expensive. That's my opinion. Profitability is top two. Credit quality top one. Best one in the mix of tobacco and everything else. So, they have these strong brands.
In short: Profitability benchmark at 40–50% return on tangible assets; "even Philip Morris has a very high payout ratio relative to the free cash flow."
12:18Even Philip Morris has a very high payout ratio relative to the free cash flow. So I'm thinking free cash flow. I like this. So that is going to be much better from a free cash flow payout ratio. So this is 40 60%. We'll see this leaves them room to reinvest in the business. Keep the dividend flowing and do buybacks.
In short: Valuation benchmark on the healthier end: Brown-Forman at 16× is still significantly cheaper than Philip Morris International.
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