Wednesday, Barclays (LON:BARC) maintained an Overweight rating on Philip Morris (NYSE: PM) stock, increasing the price target to $155 from $145. The firm believes Philip Morris is poised as the highest growth large-cap staple company, citing its guidance for the fiscal year 2024.
The company is expected to achieve 9.5% organic revenue growth, 14-14.5% in EBIT growth, and 14-15% in ex-FX EPS growth. These figures are anticipated to result in approximately 9% EPS growth, considering a roughly 6% foreign exchange (FX) headwind.
Philip Morris has faced criticism in the past for minimal EPS growth. However, Barclays projects that the company can now sustain around 7% or more EPS growth even under adverse FX conditions. In more favorable FX scenarios, the growth could surpass 10%. This optimism is bolstered by the performance of ZYN in the U.S., which is expected to contribute significantly to earnings and drive about 50% of the incremental EBIT growth.
The growth rate forecasted for Philip Morris stands out when compared to other large-cap U.S. staples such as Procter & Gamble, Coca-Cola (NYSE:KO), PepsiCo (NASDAQ:PEP), Mondelez (NASDAQ:MDLZ) International, and Estée Lauder. Barclays has adjusted the target price forward by six months while leaving valuation multiples unchanged at approximately 19 times, leading to the new $155 price target.
Barclays suggests that if Philip Morris continues to outperform expectations and deliver strong quarterly results, the company's stock could re-rate to a low 20's multiple. This outlook reflects confidence in Philip Morris's ability to achieve and maintain a higher growth trajectory than its peers in the industry.
In other recent news, Philip Morris International Inc (NYSE:PM). has reported promising results in its third-quarter earnings call, with significant organic revenue growth and a strong year-on-year increase in adjusted diluted earnings per share (EPS). The company attributes this success to robust sales of its smoke-free products, IQOS and ZYN, and growth in the combustibles segment. Notably, IQOS volumes grew by 15% year-on-year, primarily in Japan and Europe, while ZYN shipments in the U.S. saw over 40% growth.
Due to effective cost management and the promising performance of smoke-free products, Philip Morris has raised its full-year guidance, projecting a 2%-3% volume growth, 9.5% organic net revenue growth, and 14%-15% adjusted diluted EPS growth. Recent developments include a sequential improvement in market share for ZYN in Q3 and positive volume trends in international cigarette markets.
However, the company faces potential challenges from shipment mix and supply constraints, and a proposed settlement for Canadian litigation could significantly impact financials. Despite these challenges, Philip Morris remains confident in the sustainable demand for smoke-free alternatives and plans to capture over 50% market share in low and middle-income countries.
InvestingPro Insights
Philip Morris's strong financial performance, as highlighted by Barclays, is further supported by real-time data from InvestingPro. The company's impressive gross profit margin of 64.12% for the last twelve months as of Q3 2024 underscores its operational efficiency. This aligns with one of the InvestingPro Tips, which notes Philip Morris's "impressive gross profit margins."
The company's revenue growth of 8.58% over the same period closely matches Barclays' projection of 9.5% organic revenue growth for fiscal year 2024, indicating consistent performance. Additionally, Philip Morris's dividend yield of 4.1% and a history of raising dividends for 16 consecutive years, as noted in another InvestingPro Tip, may appeal to income-focused investors.
It's worth noting that Philip Morris is trading near its 52-week high, with its current price at 98.72% of the 52-week high. This aligns with the strong performance and positive outlook discussed in the article. For investors seeking more comprehensive analysis, InvestingPro offers 14 additional tips for Philip Morris, providing a deeper understanding of the company's financial health and market position.
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