Philip Morris International
stock is having a tough year, but
Citi
sees momentum picking up in the second half.
The maker of Marlboro cigarettes issued a weak earnings forecast in April for the quarter ending in June and reported first-quarter revenue that slightly missed estimates.
CFO Emmanuel Babeau told Barron’s at the time that “this was a difficult quarter” impacted partly by the supply-chain issues. The stock (ticker: PM) has fallen 6.2%, through Friday’s close this year, compared with the S&P 500’s 15% rise.
Citi analyst Simon Hales, though, says Philip Morris stock is “structurally under-valued.” He upgraded his rating to Buy from Neutral on Tuesday and raised his target for price to $117 from $109.
Hales’s rationale hinges particularly on Philip Morris’ IQOS heat-not-burn tobacco devices, which he estimates will roll out in the U.S. next year. The cigarette and vape alternative, which doesn’t produce smoke, was paused from circulation about a year and a half ago due to patent issues.
Hales now sees investors valuing the next-gen product unit at just 22x times its price-to-earnings ratio for the next 12 months, and says that’s not fairly valuing its potential.
The product is already available in Japan has grown its share from 11% in 2017 to 24% last year and 0.7% to 15% in Italy over the same period, Citi’s research arm notes. Management in October said it expects IQOS to account for around 10% of the total U.S. cigarette and heated tobacco unit volume by 2030.
Hales calls that a “comfortable” target and investors likely believe him. The stock rose 1.4% to 94.89 in premarket trading on Tuesday.
Write to Karishma Vanjani at [email protected].
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