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On Tuesday, UBS analyst Faham Baig updated the firm's outlook on Philip Morris International Inc. (NYSE:PM), raising the price target to $130 from the previous $120, while still maintaining a Sell rating on the tobacco company's shares. Currently trading at $151.52, with a market capitalization of $236.18 billion, Philip Morris has delivered an impressive 75% return over the past year. According to InvestingPro analysis, the stock appears overvalued at current levels, trading at a P/E ratio of 33.5x. The increase in the price target reflects a modestly more optimistic earnings forecast for the coming years.
Baig notes that the trajectory for Philip Morris's IQOS product may continue to face challenges, particularly due to the increasing adoption of vapor products and competitive pressures in the United States, as well as slower progress in emerging markets. Despite these challenges, InvestingPro data shows the company maintains impressive gross profit margins of 64.8% and has consistently raised its dividend for 17 consecutive years. This is attributed to factors such as higher nicotine levels in IQOS compared to traditional cigarettes and the lower price of cigarettes in these markets. For deeper insights into Philip Morris's financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.
Despite these concerns, UBS anticipates a 9.1% growth in IQOS volume by 2025, reaching 152 billion units, slightly below the consensus estimate of 155 billion. This forecast includes the potential market opening in Taiwan, which could occur as early as this month.
The analysis also points to an expected deceleration in the growth of ZYN, Philip Morris's nicotine pouch brand, in the United States. While a significant increase is still projected for 2025, with volumes growing by 35% to 787 million cans, this falls short of the brand's production capacity of 900 million. Market growth for ZYN is expected to be around 20%, hampered by tough comparatives and intensified competition, particularly from British American Tobacco (NYSE:BTI)'s Velo Plus.
Looking at the broader picture for Philip Morris, UBS predicts a slowdown in organic sales growth for the company's smoke-free products to 13.6% in 2025 and 11.5% in 2026. The group's overall growth is also expected to slow to 7.4% and 6.1%, respectively, in those years. InvestingPro analysis reveals the company's revenue growth at 7.7% over the last twelve months, with analyst consensus targets ranging from $102 to $175 per share. Due to recent weakness in the U.S. dollar, UBS has increased its earnings per share estimates for Philip Morris by 5.1% for 2025 and 6.4% for 2026, with 1% of this increase attributed to organic growth.
In conclusion, while the price target has been raised, UBS reaffirms its Sell rating on Philip Morris stock. The firm suggests that British American Tobacco might present a more attractive investment opportunity within the sector, given its potential to capitalize on the growth of nicotine pouches and its defensive characteristics amid global tariff concerns.
In other recent news, Philip Morris International (PMI) reported an overall revenue growth of approximately 8% in 2024, driven by a strong 16.7% increase in its smoke-free product portfolio, which now accounts for about 39% of total revenues. S&P Global Ratings upgraded PMI's outlook from stable to positive, citing robust growth momentum and a supportive financial policy. The rating agency highlighted the successful integration of Swedish Match AB's acquisition and projected continued EBITDA growth to $17 billion in 2025 and $19 billion in 2026. Meanwhile, PMI announced the expansion of its IQOS heated tobacco system in Austin, Texas, targeting adult smokers with this FDA-authorized product. Additionally, the company recast its segment reporting structure following the sale of Vectura Group Ltd., integrating Wellness and Healthcare results into its Europe segment. This change, which includes renaming its "PMI Duty Free" business to "PMI Global Travel Retail," has no financial impact on previously reported results. The tobacco industry also faces potential challenges from new U.S. tariffs, although UBS analysts suggest the impact may be manageable due to domestic production of key products. Despite regulatory challenges, such as a recent Supreme Court decision backing the FDA's rejection of some flavored vaping products, the sector's resilience remains a focal point for investors.
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