Philip Morris International Inc.’s PM shares have surged 30.1% in the past six months as the company continues to benefit from its transition into the smoke-free market in response to increasing health awareness and tougher anti-smoking laws. PM's stock has surpassed the industry’s growth of 24.5% during this period.
Philip Morris is trading above its peers, including Altria Group, Inc. MO and British American Tobacco p.l.c. BTI, which have seen gains of 20.9% and 17.9%, respectively, over the same period. The company's commitment to driving innovation, implementing cost-saving strategies, and leveraging strong pricing power has also helped it to outperform the Zacks Consumer Staples sector, which dropped 2.6%, and the S&P 500, which grew 11% in the past six months.
PM’s Price Performance vs. Industry, S&P 500 & Sector
Image Source: Zacks Investment Research
Closing at $130.39 on yesterday, PM stock is moving toward its 52-week high of $134.15 attained on Oct. 31, 2024. Philip Morris has shown solid upward momentum, currently trading above both its 200-day and 50-day simple moving averages (SMA), which are key indicators of price stability and long-term bullish trends. This technical strength, coupled with continued momentum, signals positive market sentiment and growing investor confidence in the company's financial health and growth potential.
PM Trades Above 50 & 200-Day Moving Average
Image Source: Zacks Investment Research
Smoke-Free Products Push PM to New Heights
Given consumers’ rising inclination toward reduced-risk products (RRPs), Philip Morris is progressing well with its business transformation. The company’s smoke-free products segment demonstrated exceptional performance in the third quarter of 2024, wherein net revenues surged by 16.8% organically, while gross profit jumped by 20.2%, contributing to a 200 basis-point increase in gross margin expansion. This growth was fueled by strong momentum across the IQOS, ZYN, and VEEV brands, supported by innovation, capacity enhancements, andglobal marketexpansion.
The company’s IQOS, a heat-not-burn device, counts as one of the leading RRPs in the industry. IQOS, celebrating its 10th anniversary, generated over $10 billion in annual net revenues. IQOS's global expansion is driven by strong performance in key markets like Japan and Europe, supported by innovative product launches, alongside significant growth in emerging markets such as Indonesia, Saudi Arabia, and Egypt. ZYN, PM’s leading smoke-free brand in the United States, has grown to 30 international markets, including the Philippines, Mexico, and the U.K. With plans to boost U.S. production capacity to 900 million cans by 2025 and further expand through a new Colorado facility, ZYN is poised for significant growth in the coming years.
Philip Morris’ smoke-free products are now available in 92 markets, progressing toward the goal of reaching 100 markets by 2025. This expansion strategy underscores the company’s commitment to transforming the tobacco industry by offering reduced-risk products.
Cost Efficiencies and Pricing Propel PM’s Growth
Philip Morris continues to capitalize on its strong pricing power, significantly boosting revenues and adjusted operating income. In the last reported quarter, pricing played a pivotal role, contributing 7.5 percentage points to revenue growth, driven by 9.7% pricing gains in combustibles. For 2024, combustible pricing is expected to rise 8-9%, reinforcing its positive impact on its performance.
The company has implemented significant cost-saving measures and strategic initiatives to enhance its margins and achieve its long-term financial goals. With cumulative gross cost efficiencies reaching $490 million year to date, it is on track to achieve its 2024-2026 target of $2 billion in savings. This disciplined cost management approach strengthens Philip Morris’ profitability and competitive positioning while supporting future growth initiatives.
Philip Morris Projects Strong 2024 Growth
The strong business momentum led management to raise its full-year 2024 outlook yet again at its third-quarter earnings call. For 2024, management now expects net revenues to increase 9.5% on an organic basis compared with 7.5-9% growth expected before. The operating income on an organic basis is likely to rise 14-14.5%, up from 11-13% growth forecasted earlier.
Philip Morris now projects its 2024 adjusted earnings per share (EPS) to range between $6.45 and $6.51, reflecting a growth of 7.3% to 8.3%, up from its previous forecast of $6.33 to $6.45 (5.3% to 7.3% growth). Excluding currency impacts, adjusted EPS is expected to rise 14% to 15% year-over-year, reaching $6.85 to $6.91, compared to the earlier projection of $6.67 to $6.79 (11% to 13% growth). This upward revision underscores the company’s confidence in maintaining growth momentum, a positive signal for investors seeking reliable performance amid broader market volatility.
Estimate Revisions Favoring PM Stock
Analysts have responded positively to Philip Morris’ prospects, reflected in upward revisions in the Zacks Consensus Estimate for EPS. In the past 30 days, analysts have increased their estimates for the current fiscal year by 9 cents. The consensus estimate for earnings is pegged at $6.51 per share.
The consensus estimate for the next fiscal year has also been raised 8 cents to $7.17 per share. The Zacks Consensus Estimate for the current and next fiscal year’s sales is pegged at $37.6 billion and $40.1 billion, indicating year-over-year growth of 6.7% each year.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Image Source: Zacks Investment Research
Has the Recent Jump in Stock Price Made PM Expensive?
Philip Morris’ current market valuation is stretched compared to its industry peers like Turning Point Brands, Inc. TPB. The company’s forward 12-month price-to-sales (P/S) ratio is 5.09, surpassing the industry average of 3.99. This higher ratio implies that investors are potentially paying a premium for Philip Morris’ stock relative to its anticipated sales performance. Furthermore, the company’s Value Score of D adds to the concern, highlighting that the stock might be overvalued based on its current financial metrics.
Roadblocks for Philip Morris
Philip Morris continues to grapple with challenges that could hinder its growth trajectory. In the third quarter of 2024, the company saw a boost in the cigarette business in markets like Turkey, India, and Brazil, where smoke-free products are not yet permitted. While this has temporarily boosted cigarette volumes, these markets face persistent regulatory pressures that could restrict future growth. Dependence on traditional tobacco in such markets exposes Philip Morris to potential regulatory crackdowns, posing a significant hurdle to its long-term strategy.
Currency volatility adds another layer of complexity. Adverse foreign exchange movements negatively impacted the company’s quarterly adjusted EPS by 6 cents and are projected to have a full-year adverse impact of 40 cents. To overcome these roadblocks, Philip Morris must accelerate the adoption of its smoke-free products and implement strategies to mitigate currency impacts, ensuring it can maintain stability while adapting to evolving market and regulatory conditions.
Investors’ Guide to Philip Morris Stock
Philip Morris’ impressive stock rally reflects strong momentum, driven by its smoke-free transformation, robust pricing power, and disciplined cost management. While its innovation and market expansion efforts position the company well for continued growth, challenges like currency fluctuations, regulatory risks, and valuation concerns warrant caution. For those with a long-term outlook, PM’s strong fundamentals and upward revisions in guidance make it a solid hold. At the same time, prospective investors may consider waiting for a better valuation entry point. At present, Philip Morris carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Research Chief Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.
Free: See Our Top Stock And 4 Runners UpAltria Group, Inc. (MO) : Free Stock Analysis Report
Philip Morris International Inc. (PM) : Free Stock Analysis Report
British American Tobacco p.l.c. (BTI) : Free Stock Analysis Report
Turning Point Brands, Inc. (TPB) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
