Philip Morris International shares are weak ahead of an investor day scheduled for Thursday. The Marlboro maker will be expected to give more details about upcoming product releases and growth expectations. Goldman Sachs analyst Bonnie Herzog reiterated last week her buy rating for Philip Morris shares. She said that she expects a “robust presentation” which will be positive for the stock. The shares are still trending down, having lost more than 3% over the last week. Since the beginning of the year, they are down by more than 7%. Philip Morris is preparing to bring iQOS to the U.S. Market. The alternative cigarette heats the tobacco instead of burning it. The product’s FDA approval allows it to claim that users are exposed less harmful chemicals because there is no smoke. Over the last year, PM 1Y shares of Philip Morris International have climbed to a mountainous height. Philip Morris partnered with Altria to launch iQOS in a few U.S. states in 2019. A patent dispute stopped sales. Philip Morris eventually agreed to purchase the commercialization rights back from Altria. The deal will take effect on April 30, 2024. Analysts say that the question of how much Philip Morris would need to spend on the U.S. rollout has been weighing heavily on the stock. It could be that clarity is needed on this issue before the stock can move higher. Herzog believes that management will raise the mid-term target for organic revenue to a range between 6% and 8% on Thursday, up from its previous target of just 5%. She added that “we wouldn’t be surprised if mgmt maintained its mid-term earnings growth target while it ramped investments to drive accelerated long-term growth.” According to Barclays analyst Gaurav Jain, IQOS has been sold in a variety of markets around the globe and represents about 17% Philip Morris’s volume and 33% its revenue. He stated that iQOS was “significantly more profitable” than cigarettes due to the tax structure and also because it is a premium product. He said that the ongoing investment into the iQOS expansion has masked its potential impact on profitability. Jain wrote that PM should slow down incremental IQOS investments in greenfield markets such as the US and let IQOS profits flow to the bottom-line for a while. This would be a good guide for investors when the product eventually enters the US. He said that this could introduce “a more cycle-like element to PM’s earnings per share growth.” Nicotine pouches are becoming more popular Jain is more optimistic about Zyn, the smoke-free nicotine bag that Philip Morris acquired through the Swedish Match acquisition. He said it “continues surprising to the upside.” Bank of America reported recently that the sales of smokeless products rose by nearly 11% in August compared to last year. This is an improvement of 100 basis points from the previous four-week period. Sales gains come from oral nicotine products such as Zyn, and competitors like on! Velo and Rogue. The firm reported that traditional chewing tobaccos are experiencing sales declines in comparison to last year. Zyn nicotine pouches are discrete to use, as there is no smoke or spitting. These pouches do not even contain tobacco leaves. They deliver nicotine in powder form, which is usually available in flavors such as coffee, citrus, and cinnamon. Philip Morris is attempting to shift away from tobacco products to safer alternatives. Herzog stated that this strategy is part of the reason why Philip Morris is a top choice for Goldman Sachs. She wrote, “We are bullish as PM leads the industry’s pivot towards a smoke-free tomorrow.” According to our analysis, we believe that this transformation will lead PM to become a more profitable and faster-growing company. Herzog’s price target of $122 implies that shares could rise more than 30% compared to Monday’s closing value of $93.72. Her target price is still higher than the average Wall Street price target of $114.49, according to FactSet. 85 percent of analysts rate this stock as a buy. Regulators are still wary. The implementation of a harm-reduction strategy in the U.S. was a difficult process to date. Health groups and regulators have been reluctant to partner with tobacco companies in order to promote these products. Some worry that these newer nicotine forms could encourage teens and young adults to try cigarettes, rather than encourage them to switch. Philip Morris’ pharmaceutical acquisitions have also struggled. The Wall Street Journal reported recently that the company was considering various options for its pharmaceutical division. Philip Morris CEO Jacek Olczak talked about harm reduction on X last week via ReutersPlus. Olczak made the speech after his invitation to speak at Concordia Annual Summit had been withdrawn under pressure by health groups. The summit is an event that takes place in conjunction with the annual United Nations General Assembly, which is held annually in New York. Owen Bennett, a Jefferies analyst, said in a research note that this new communication strategy “could be effective.” Bennett stated that “the tobacco companies have had little success in trying to gain public health and regulatory support for harm reduction.”
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