By Michael Elkins
UBS upgraded Philip Morris International (NYSE:PM) to a Buy rating (from Neutral) and raised the price target on the stock to $116.00 (from $106.00) after updating estimates for the tobacco company.
Over 2022-2026, UBS expects PMI to generate a 7.6% organic growth CAGR, with smokefree reaching 45% of group sales by 2025. Given the structural long-term resilience of cigarette sales, the material upside to sales and profits from IQOS, SWMA, and its defense of its share leadership in heated tobacco, UBS views PMI as best placed among its peers.
Analysts wrote in a note, “We upgrade PMI to Buy and raise PT to $116 (+9%) driven by (i) an acceleration of HTU shipment growth in mature markets thanks to ILUMA, (ii) an expanding value mainstream heated tobacco offering via lil (15-year partnership with KT (NYSE:KT)&G) and BONDS, its low cost offering (2 pilots underway, more launches in 2024), (iii) Swedish Match's accretive growth and margin profile, and (iv) strong cash flow generating combustible business. Despite ILUMA's current margin dilution, given A&P and COGS inefficiencies, new launches provide an immediate volume and share tailwind, with scale benefits to come online over H2 23, ahead of 2024's launches of BONDS for the low-end markets and US IQOS, also highlighted at CAGNY. This, in our view, will cement PMI's status as best-in-class in Tobacco, with 2022-25E EPS growing +9.0% reported (+11% cFX), second only to Buy-rated IMB. We cut 2023 organic sales growth by -150bps to 7.4%, organic margin contraction by -180bps to -92bps, but raise EPS +6.6%, having added back Russia into the numbers.”
Shares of PM are up 0.10% in afternoon trading on Wednesday.