Philip Morris International (PM.N) - Smoke-free growth undervalued. Upgrade
Tobacco has de-rated sharply in recent years as the low-growth outlook for
cigarettes and ESG considerations have weighed on stocks. However, with NGPs
contributing meaningfully to industry and PM’s performance in particular, we believe
investors are at risk of structurally under-valuing this evolving segment. PM is
trading on a -26% discount to US Staples, and we estimate IQOS is being valued
on just a c.22x PE multiple. This is a -35% discount to higher growth Staples – e.g.
Campari & L’Oréal. Given PM’s global leadership in NGPs (2022-27E CAGR of
c.16%), and potential for further mid-term upside from the roll-out of IQOS in the
US, we believe the market is failing to adequately value the group’s future growth
and cash-flow prospects. Applying a 30x FY23E multiple to the heated tobacco
earnings stream increases our TP to $117 (from $109). We upgrade to Buy and
open a Positive Catalyst Watch.