While all consumer industries are facing disruptive competition, the change is most dramatic in Tobacco, Citi analyst Adam Spielman tells investors in a research note on the sector titled "The New World of Tobacco." Heated tobacco has taken 20% of the Japanese market in two years, and Juul e-vapor systems are getting well over 70% of incremental spend on nicotine products in the U.S., the analyst points out. In addition, new products like Raptor and Mesh may cause further problems in Europe, he adds. Spielman thinks tobacco companies will have to deliver on both sales and margin to merit higher valuation multiples. Philip Morris (PM) is moving as fast as possible into this "New World," the analyst contends. He thinks the company's margins start increasing again within 12 months, driving a stock "rerating." The analyst upgraded Philip Morris to Buy from Neutral with an increased price target of $125. On the flip side, Spielman downgraded British American Tobacco (BTI) to Neutral from Buy. The analyst does not see the stock rerating until it is clear the company can turn sales growth into margin expansion. He sees investments making this unlikely over the next 12 months. Spielman has a GBP 48 price target for the shares.