On Wednesday, Goldman Sachs adjusted its outlook on Philip Morris (NYSE:PM), increasing the price target to $140 from the previous $126 while maintaining a Buy rating on the stock. The adjustment comes as the firm anticipates a strong upcoming third-quarter earnings report for the company, set to be released on October 22, 2024.
The optimism is based on several short-term positive catalysts and the momentum of long-term growth drivers for Philip Morris. Following a recent meet-and-greet with Philip Morris's U.S. management team, Goldman Sachs revisited its analysis of the U.S. nicotine market.
This reassessment led to a new discounted cash flow (DCF) sum-of-the-parts (SOTP) evaluation, which suggests an equity value of $150 per share for Philip Morris.
The analysis by Goldman Sachs indicates that 64% of this valuation is tied to Philip Morris's expanding smoke-free business, while the remaining 36% is attributed to its traditional cash-generating combustible products.
The firm expresses increased confidence in Philip Morris's ability to capture a 10% share of the U.S. combustible and heat-not-burn market by around 2030 with its iQOS product.
This market share expansion is expected to contribute approximately 1.3 percentage points to annual top-line growth and 1.7 percentage points to bottom-line growth.
In light of these factors, Goldman Sachs has raised its earnings per share (EPS) estimates for Philip Morris. The new price target of $140 is based on a forward-year 2025 enterprise value/earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple of 14.3 times.
This multiple represents a 13% premium over the company's current multiple but is still below the premium Philip Morris has historically commanded over a one- and three-year period.
In other recent news, Philip Morris International (NYSE:PM) has been making strategic moves and receiving positive analyst feedback. The company sold its subsidiary Vectura Group Ltd. to Molex Asia Holdings Ltd, a shift that allows Vectura to operate independently of Philip Morris' ownership.
The company also made a significant investment in its Owensboro, Kentucky manufacturing facility to increase production capacity for ZYN nicotine pouches.
Philip Morris International has also seen an increase in its quarterly dividend to $1.35 per share, marking a 3.8% rise. The company's projected earnings per share for 2024 range from $6.33 to $6.45, reflecting a 5.3% to 7.3% increase from the previous year.
Analysts from BofA Securities, Stifel, and Goldman Sachs have upgraded their financial outlook for the company. BofA raised the stock target to $139 from $125, Stifel increased the price target to $138 from $120, and Goldman Sachs added Philip Morris to its US Conviction List.
The company's recent acquisition of Swedish Match further underscores its commitment to a smoke-free future. Smoke-free products accounted for approximately 38% of its net revenues in the first half of 2024. These are the recent developments for Philip Morris International.
InvestingPro Insights
As Philip Morris (NYSE:PM) gears up for its third-quarter earnings report, the company's financial health and market performance are crucial for investors. As per the latest data from InvestingPro, Philip Morris boasts an impressive gross profit margin of 63.87% over the last twelve months as of Q2 2024, underscoring the company's ability to maintain high levels of profitability. This aligns with Goldman Sachs' optimism about the company's growth prospects, particularly in its smoke-free business.
InvestingPro Tips highlight Philip Morris's commitment to shareholder returns, with the company having raised its dividend for 16 consecutive years, showcasing a dividend yield of 4.46% as of June 2024. This enduring dividend growth, coupled with a 6.3% increase in dividend growth over the last twelve months as of Q2 2024, may appeal to income-focused investors. Additionally, the stock's 3-month price total return of 18.79% and a robust 1-year price total return of 36.57% reflect a strong market performance that has likely contributed to Goldman Sachs' positive reassessment.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips on Philip Morris, including insights into the company's valuation multiples and stock volatility. These metrics, alongside the upcoming earnings report, could provide a more nuanced understanding of the company's investment potential.
It's important to note that while the stock is trading at a high P/E ratio of 21.47, indicating a premium valuation relative to near-term earnings growth, the company has also demonstrated a strong return over the last three months, which may justify the current valuation to some investors. For those interested in a deeper dive, there are more InvestingPro Tips available at: https://www.investing.com/pro/PM.
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