Stifel on Philip Morris (PM): 'We view the pullback in the shares as an attractive buying point'

Stifel analyst Matthew Smith reiterated a Buy rating and $186.00 price target on Philip Morris (NYSE: PM).

The analyst comments "What happened: PMI reported a better than expected 3Q across organic sales, profit margin expansion, and EPS growth. The company raised the low end of its 2025 EPS outlook benefiting from a lower tax rate and favorable interest expense, but lowered its operating profit guidance, now +10%-11.5% (previously +11%-12.5%) incorporating the drag from higher U.S. investments including uniquely higher promotional activity for ZYN in 3Q and higher promotional activity going forward with supply no longer an issue. • 4Q Operating Profit: PMI’s outlook implies low to mid single digit operating profit growth in 4Q, slightly below our previous expectation. The primary driver of the deceleration in profit growth is inventory headwinds across both the IQOS and ZYN business. Importantly, inmarket sales growth for IQOS is expected to accelerate in 4Q, the unfavorable shipment timing was known into the quarter. ZYN inventory normalization shifted from 3Q into 4Q due to promotional activity, the company expects a 20-30 million can inventory headwind in 4Q. We previously modeled this in 3Q with our view of the overall level of ZYN shipments mostly unchanged. • ZYN US Dynamics: ZYN is no longer supply constrained and promotional and marketing activity dramatically increased in 3Q with PMI relaunching the brand and offering a uniquely high portion of promotional activity including a free tin for consumers purchasing alternative nicotine products in some locations. ZYN’s promotional support trailed the category in 1H due to supply constraint, we believe ZYN will resume a normalized level of promotion in 4Q and going forward, not as high as 3Q, but higher than pre-supply constraint due to competitive activity. 3Q relaunch expenses were near $100 million, a level that essentially matches the operating profit guidance reduction. Promotional activity is a headwind to profit through 1H26 against tough comparisons when ZYN was supply constrained, but the 3Q level of promotion was likely uniquely high and we believe PMI is capable of delivering EPS growth in line with its medium term targets in 2026 (9-11%). • Stock: We continue with our Buy rating. We view the pullback in the shares as an attractive buying point with the 4Q profit performance not indicative of earnings growth momentum into 2026. We believe PMI remains well positioned to achieve EPS growth in line with its medium term growth algorithm (9-11%) supported by momentum across its smoke-free and combustible businesses despite the normalization of promotional activity in U.S. ZYN."

For an analyst ratings summary and ratings history on Philip Morris click here. For more ratings news on Philip Morris click here.

Shares of Philip Morris closed at $158.06 yesterday.

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