Philip Morris International has ‘compelling’ risk/reward – Goldman Sachs

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Philip Morris International (NYSE:PM) was lifted to Buy from Neutral with a $120 price target at Goldman Sachs on Wednesday, with analysts stating the firm sees a compelling risk-reward for the stock.

In addition, the firm expects PM’s long-term growth algo to accelerate by 1-2pts over the next several years, with a key driver being the rollout of iQOS in the US market.

“We performed an in-depth analysis of the US nicotine market (which increases PM’s TAM by 60%) and, in our base case scenario, we believe PM can comfortably reach a 10% share of the US combustible & heat-not-burn market by 2030. As a result, this will conservatively drive ~1pt of incremental annual top & bottom line growth and an incremental $17/share of value based on our sum-of-the-parts DCF analysis,” write the analysts.

Goldman Sachs also sees further upside potential over the next several years from a broader and more aggressive global rollout of ILUMA, an accelerated RRP innovation pipeline, and further price segmentation of iQOS.

“Ultimately we see a long runway of accelerating rev/profit growth ahead fueled by the tremendous compounding effect of iQOS’ razor/razor blade model,” Goldman analysts add. “Net net, we believe PM’s risk-reward is favorable given its strong competitive advantage with iQOS, its attractive net rev/OI/EPS growth algo as the company takes greater share of the growing global nicotine pool, an attractive dividend yield of 5%, and a compelling valuation given its accelerated growth profile.”

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