Analyst Adam Spielman reiterated a Buy rating on Philip Morris International stock (ticker: PM), while raising his price target to $105 from $100. The “stock price is disconnected from economic reality,” he writes, but it could finally get a boost after the company’s investor day on February 10 and share repurchases later in the year.
He expects Philip Morris to announce an “acceleration in its transformation” to reduced-risk products, or RRPs. RRPs include things like iQOS, their heat-not-burn e-cigarette-like product; “sticks” are the individual units of that.
The company has long been working toward a smoke-free future, and previously set a target of 90 billion to 100 billion of RRPs sold in 2021. Spielman expects the company could replace that figure with a new three-year target of 150 billion to 200 billion sticks in 2024.
The company has already said it will be introducing numerous new products. It also plans a faster expansion in emerging markets, which would support an ambitious new goal—along with its prior ESG commitment to a blue-sky scenario of 250 billion sticks in 2025. If the company does announce this kind of new target, it should push consensus estimates higher, helping the stock.
In addition, Spielman is modeling for large stock buybacks in the second half of the year: “Buybacks are critical in tobacco because few investors are willing to get involved currently, due to ESG and the rotation against value, even though the stocks seem very cheap.” Philip Morris previously said it would restart buybacks when the pandemic was more contained and it improved its balance sheet, which could happen in the second half of the year. He estimates repurchases could reach $4 billion a year in 2023.
Philip Morris is up 0.2% to $83.16 in recent trading. The shares have fallen 4.5% in the past 12 months.
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