Undervalued Potential? Stifel Analyst Suggests Philip Morris Shares Don't Reflect Growth Avenues From Smoke-Free Transition

Stifel analyst Matthew Smith reiterated Philip Morris International Inc PM with a Buy and a $114 price target.

Philip Morris held its biannual investor meeting last week outlining its continued transformation, including new medium-term growth targets and highlighting the revenue growth and margin mix benefits from its smoke-free products. 

The company's smoke-free ambitions and the mix benefit to the overall company from this transformation were on full display, with the company highlighting the advantaged profitability of IQOS and ZYN relative to its combustible business and the advantaged profitability of its products in the U.S. relative to international markets. 

New medium-term guidance targets include 6-8% organic sales growth, 8-10% operating profit growth, and 9-11% EPS growth on a constant currency basis. 

The company is targeting 180 to 200 billion heated tobacco unit volumes by 2026 and nicotine pouch cans in the 800 million to 1 billion range.

PMI gains access to IQOS in the U.S. beginning in May 2024. The opportunity is compelling, and PMI is taking a prudent approach, initially launching the authorized blade product in just a few cities while remaining patient for a broader national rollout once ILUMA is available.

Shares trade well below consumer staples peers, which he does not believe appropriately reflects the growth and margin potential of the business, especially as smoke-free products become a more significant portion of the portfolio. 

Smith projects Q3 net sales of $8.74 billion (consensus $9.28 billion), EPS of $1.61 (consensus $1.61), and Q4 net sales of $8.94 billion (consensus $9.27 billion), and EPS of $1.46 (consensus $1.60).

The analyst estimates FY23 net sales of $34.75 billion (consensus $35.59 billion) and EPS of $6.05 (consensus $6.17).

Price Action: PM shares traded lower by 1.04% at $91.63 on the last check Monday.