Philip Morris International shares have struggled this year, but got a boost from an upbeat earnings report and full-year forecast earlier this week. That signals there is more good news to come for the tobacco giant, especially as it sells more reduced-risk products that it hopes will shift smokers away from traditional cigarettes, Stifel says.
Philip Morris (ticker: PM) beat top- and bottom-line expectations when it reported second-quarter results on Tuesday, and the company also reinstated its full-year guidance, something many other companies have been loath to do, given the ongoing uncertainty surrounding the impact of the coronavirus pandemic.
On Wednesday, Stifel analyst Christopher Growe reiterated a Buy rating on the shares and raised his price target by $5 to $90. The move comes as he raised his full-year earnings-per-share estimates for this year and next to account for the reintroduced guidance, which came in ahead of expectations.
“Management took a significant step by providing guidance for the business—as one of the most global businesses we know, we were impressed the company provided its full-year expectations, its expectations for the upcoming third quarter, and laid out the basic tenets underpinning its guidance,” he writes.
Growe is also enthusiastic about Philip Morris’s heat-not-burn cigarette alternative IQOS, which the Food and Drug Administration recently ruled can be marketed as a modified-risk tobacco product. He writes that IQOS is the “engine [that] is powering the growth of the company,” and could ultimately give Philip Morris a growth profile that sets it apart from its peers. The most recent results showed that IQOS is selling well in key overseas markets. The company said total users for its heated-tobacco product IQOS were roughly 15.4 million in the second quarter, including 11.2 million that have stopped smoking traditional cigarettes after switching to the alternative.
Philip Morris is down 1.3% to $74.94 in recent trading. The shares have fallen nearly 12% year to date, even with yesterday’s earnings related pop. Although stress and boredom during lockdown did lead some people to smoke more, and Growe is not alone in praising IQOS’s prospects, that’s done little to help the shares, although they have held up better than Altria Group (MO). That stock is down more than 17%, hurt in part by its vaping-related woes.
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