Philip Morris International's Expansion in Smoke-Free Products and Strong Zyn Momentum Reinforces Confidence: Morgan Stanley

Morgan Stanley analyst Pamela Kaufman reiterated an Overweight rating on the shares of Philip Morris International Inc PM with a price target of $113.

PM’s Investor Day and new mid-term targets reinforced multiple tenets of the analyst’s view of significant further growth opportunities for IQOS in new and existing markets.

Expansion of smoke-free product (SFP) portfolio increases PM’s addressable market and strong Zyn momentum with room is expected to triple brand sales in the U.S. and expand internationally, said the analyst.

The analyst sees significant IQOS growth potential in the U.S. market starting in 2024 with compelling unit economics.

PM provided new mid-term targets from 2024-2026 that reflect stronger growth relative to its 2021-2023 growth algo, alleviating some investors’ concerns that its near-term outlook would be hampered by elevated investment needs behind US IQOS expansion, noted the analyst.

PM expects to generate $36 billion to 39 billion in total operating cash flow from 2024 through 2026 and to spend $3.5 billion - 3.7 billion in capex during this time frame.

This leaves flexibility to support PM’s ~$8 billion annual dividend payment and to paydown debt, said the analyst.

Following PM’s investor day, the analyst reduced 2023/24 EPS estimate to $6.10/6.68 from $6.27/6.97, or -2.7%/-4.2%, primarily reflecting unfavorable currency impacts due to a general strengthening of the U.S. dollar, including a balance sheet related FX impact from the depreciation of the Argentine Peso.

The analyst believes PM is uniquely positioned within the Consumer Staples sector given its broad geographic diversification, strong pricing power, leading market share, over $10.7 bn in R&D and brand building investment over the last 15 years to transform its business.

Price Action: PM shares are trading lower by 1.25% at $90.27 on the last check Tuesday.