Philip Morris (PM) PT Raised to $73 on FX but Jefferies Sees Substantial Headwinds Ahead

Jefferies analyst Owen Bennett raised the price target on Philip Morris (NYSE: PM) to $73.00 (from $70.00) noting that an expected volume miss could be overlooked by investors. The PT increase is due to FX gains but looking ahead into 2021, a greater multiple headwind could be around the corner in the form of increased taxes.

The analyst maintained a Hold rating, stating "The bigger risk for us on PM (vs. cigs), and the reason we remain cautious near term, is possible heated slowdown. While we increase our estimates for the current year, we do think the pace of growth could slow into FY21. There are two risks: volumes and sales. On volumes, growth is being driven by a few key markets vs all 58 being equal relative contributors. Our point here is that if these key markets slow, which we think will likely happen as distribution support laps, the rate of growth will slow. We are modeling heated vols for FY21 at 86bn vs the target of 90-100bn. Pushback here is that even if vols come slightly short of targets, it doesn't matter if growth is still strong. To this, even on our numbers FY21 growth is 18%, and PM's total cigs and heated vols should be down 2.6% vs. the industry down 3.0%, so net share gainer. We cannot dismiss this argument. Likely a bigger risk over vols is to sales, and the threat of heated taxes. We think as we enter a recession, increased taxes are likely. To this, the new EU TPD is looking to introduce uniform taxes at its next update (here), but it is likely (in our view) markets could move independently before then. The best indicator of this is Italy, the largest EU heated market, where a widely supported amendment to hike taxes was proposed in July".

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