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Philip Morris International (NYSE:PM) was raised to Buy from Hold, with its price target lifted to $118 from $86 per share by Jefferies analysts in a note to clients on Thursday.
In a wide-ranging note focused on tobacco stocks, the analysts told investors they adjusted the rating on PM as they also now capture the contribution from the Swedish Match deal.
“On a longer-term basis, we have consistently been constructive on PM because it is leading the shift over to the tobacco model of the future, both RRP and Beyond Nicotine,” argues Jefferies. “On the former, it is the global leader, with estimated RRP share of 23%, compared to 21% share in combustibles.”
The analysts explained that their firm’s previous near-term caution on Philip Morris was based on an assumption of an unfavorable European Tobacco Tax Directive for RRP taxes, as well as PM’s lack of current RRP exposure to the US, and potential share and cost implications.
However, it has now changed its outlook on those areas.
“In the EU TTD, this will be important for PM in a couple of ways. First, EU RRP is significant for PM, and expected to make up over 16% of PM group sales in FY22, while in the EU specifically, it is expected to contribute around 40% of sales,” the analysts said. “Second, with favorable economics also present in most other markets globally due to lower taxes, if the EU was to implement aggressive increases, it is fair to assume such an outcome would also be priced in elsewhere,” they added.
