Morgan Stanley Starts Philip Morris (PM) at Overweight

Morgan Stanley analyst Eric Serotta initiates coverage on Philip Morris (NYSE: PM) with a Overweight rating and a price target of $140.00.

The analyst comments: "We see continued upside for PMI's stock as its reduced-risk smoke-free portfolio drives stronger than expected LT sales and earnings growth and becomes an even larger percentage of the mix, which should drive upward re-rating for the stock. Smoke-free products accounted for ~38% of PMI's net revenue in 2024e and we forecast SFPs to reach 55-65% by 2030e (conservatively below PMI's target of >2/3). We see substantial growth ahead for PMI's smoke-free portfolio driven by international IQOS momentum, robust growth for Zyn, and the US launch of IQOS. Robust SFP growth along with modest growth in combustible sales/profit should enable PMI to deliver at the upper half of its 6-8% OSG, and above its 8-10% OI and 9-11% FX-N EPS algorithm through 2026, the highest among mega-cap CPG peers. While PMI's stock is +25% over the LTM, in line with the S&P 500 +22%, the stock is -11% from December highs (vs. the S&P 500 -2%), and is trading in-line with its 10-year average NTM P/E, despite PMI's higher smoke-free mix today. PMI is also trading at a ~34% discount to theoretical fair value based upon a regression of LT OSG vs. 2026 P/E for mega-cap peers, which we expect to narrow as the market better appreciates that PMI's smoke-free transformation has boosted its growth profile. We forecast a ~7% net sales and OI CAGR for PMI over the next five years, above the ~5.5% market-implied sales/OI growth rate from our reverse DCF."

For an analyst ratings summary and ratings history on Philip Morris click here. For more ratings news on Philip Morris click here.

Shares of Philip Morris closed at $118.51 yesterday.

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