Shares of Philip Morris International Inc. PM reached a 52-week high of $127.41 on Wednesday before closing the trading session at $126.61. The company’s strategic focus on smoke-free products, driven by growing consumer health consciousness, has been a key factor in its success. Its pricing power has also bolstered performance.
These factors have fueled a 21.5% rally in Philip Morris shares over the past three months, outpacing the broader industry’s growth of 20.7%. PM also surpassed the Zacks Consumer Staples sector and S&P 500 gains of 6.4% and 2.7%, respectively, in the same time frame.
With such strong momentum, many investors are wondering whether they’ve missed a prime buying opportunity or if there’s still room for growth. Let’s take a closer look.
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Focus on Smoke-Free Alternatives Drives Philip Morris
Given consumers’ rising inclination toward reduced-risk products (RRPs), Philip Morris is progressing well with its business transformation, with smoke-free products generating 38.1% of the company’s net revenues in the second quarter of 2024. PM aims to generate more than two-thirds of its total revenues from smoke-free products by 2030. To this end, the company’s IQOS, a heat-not-burn device, counts among one of the leading RRPs in the industry.
Among other initiatives, Philip Morris became the majority owner of Swedish Match on Nov. 11, 2022, which has been delivering impressive performance due to ZYN. Further, on Jan. 30, 2023, Philip Morris unveiled a long-term partnership with KT&G to commercialize the innovative smoke-free devices and consumables of the latter outside South Korea. Philip Morris has announced a new memorandum of understanding with KT&G, which outlines their plans to work together on getting regulatory approval for KT&G’s new heat-not-burn products in the United States.
In the second quarter of 2024, revenues from the smoke-free business rose 13.6% (up 18.3% on an organic basis). In the quarter, the company witnessed continued strength in IQOS performance. Within the smoke-free business, inhalable smoke-free products (SFP) were driven by strength in IQOS, while oral SFP was fueled by increased shipment volumes of ZYN. Within e-vapor, VEEV is performing well and is treading toward profitability.
In 2024, management expects an acceleration in organic smoke-free net revenues and an increase in the gross profit from the 2023 levels. Management expects the total cigarette, HTU and oral smoke-free product shipment volume for Philip Morris to rise 1-2% in 2024, driven by smoke-free product strength. Smoke-free revenues are expected to reach nearly $15 billion in full-year 2024.
PM’s Pricing Power
Philip Morris’ robust pricing strategy has enabled the company to maintain profitability even as cigarette shipment volumes decline. While higher prices might lead to reduced consumption, the addictive nature of cigarettes often results in consumers absorbing these increases, ensuring continued revenue generation for the company. PM expects combustible pricing to be up 7-8% in 2024.
What to Expect From PM in 2024?
Philip Morris expects to witness a robust second-half performance and raised its full-year guidance for 2024 despite the adverse currency movements. For 2024, PM now expects net revenues to increase 7.5-9% on an organic basis compared with 7-8.5% growth expected before. Apart from this, continued cost-saving initiatives position Philip Morris well to achieve its margin expansion goals and drive bottom-line growth despite ongoing currency headwinds.
In 2024, the operating income on an organic basis is likely to increase 11-13%, up from the 10-12% growth forecasted earlier. Adjusted EPS for 2024 is envisioned in the $6.33-$6.45 range, suggesting 5.3-7.3% growth. Adjusted EPS, excluding currency, is likely to be in the $6.67-$6.79 band, indicating a year-over-year increase of 11-13%. Adjusted EPS was previously anticipated between $6.19 and $6.31, whereas adjusted EPS, excluding currency, was envisioned in the $6.55-$6.67 range.
For the third quarter, the company anticipates a record-high quarterly adjusted diluted EPS of $1.77-$1.82 despite facing a significant step-up in commercial spending and unfavorable currency movements.
What do Estimates Say About PM?
Reflecting the positive sentiment around Philip Morris, the Zacks Consensus Estimate for earnings per share has seen upward revisions. Over the past 60 days, analysts have increased their estimates for the current and next fiscal year by 1.7 to $6.43 and by 1.9% to $7.10 per share, respectively. These estimates indicate expected year-over-year growth rates of around 7% and 10.5%, respectively.
Investors’ Playbook for Philip Morris
Philip Morris remains well-positioned for continued success. The company’s strong momentum, focus on innovative smoke-free solutions and proven ability to drive profitability make it an attractive investment in the evolving tobacco industry. We believe that investing in Philip Morris now offers the chance to capitalize on its rising success. PM currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Solid Staple Stocks
Here, we have highlighted three other top-ranked consumer staple stocks, namely The Chef's Warehouse CHEF, Pilgrim’s Pride PPC and Ollie's Bargain Outlet OLLI.
The Chef’s Warehouse, which engages in the distribution of specialty food products, currently sports a Zacks Rank #1.
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, currently sports a Zacks Rank #1. PPC delivered a positive earnings surprise of 27.3% in the trailing four quarters, on average.
The Zacks Consensus Estimated figure for Pilgrim’s Pride’s current financial-year earnings implies growth of 183.43%, respectively, from the prior-year reported level.
Ollie's Bargain, the extreme-value retailer of brand-name merchandise, currently carries a Zacks Rank #2. OLLI has a trailing four-quarter earnings surprise of 7.9%, on average.
The Zacks Consensus Estimated figure for Ollie's Bargain’s current financial-year sales and earnings calls for a rise of around 8.1% and 12.71%, respectively, from the year-earlier levels.
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Free: See Our Top Stock And 4 Runners UpPhilip Morris International Inc. (PM) : Free Stock Analysis Report
Pilgrim's Pride Corporation (PPC) : Free Stock Analysis Report
The Chefs' Warehouse, Inc. (CHEF) : Free Stock Analysis Report
Ollie's Bargain Outlet Holdings, Inc. (OLLI) : Free Stock Analysis Report
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