Morgan Stanley Hightlights PMI as Attractive Investment

Industry Insight by 2FIRSTS.ai
Jul.17.2023
Morgan Stanley Hightlights PMI as Attractive Investment
Morgan Stanley believes Philip Morris International is a top pick in the food and tobacco sectors, with an attractive risk-reward profile and potential for growth.

Morgan Stanley, has labeled Philip Morris International (PM) as a top pick in both the food and tobacco sectors. Analyst Pamela Kaufman has identified an attractive 4:1 risk-reward profile on the stock, suggesting that the recent pullback has created an enticing entry point for investors. 

 

One of the key reasons provided by Morgan Stanley to buy shares of Philip Morris International is the accelerating adoption of IQOS, a popular tobacco product, supported by the ILUMA rollout. Additionally, the Rapid Zyn growth in the U.S. presents an opportunity for international expansion. 

 

The company is also believed to have an appealing chance to penetrate the U.S. market for IQOS, while keeping investment spending under control. In terms of valuation, Philip Morris International is considered attractive compared to its peers in the Staples sector. The company's improving business mix, strong pricing power, U.S. expansion opportunity, and promising growth profile are factors that contribute to its appeal. 

 

Currently, PM is trading at a 14.5x NTM P/E ratio, which is 14% below its 10-year average of 16.8x. Furthermore, the stock is trading at a 37% discount compared to peers, a significant difference when compared to the average 20% discount observed over the past decade. PM is also available at a 26% discount to the S&P 500, unlike the usual 2% discount. On the balance sheet, Philip Morris International is expected to resume share buybacks and increase its dividend annually by 3%, providing additional incentives for investors. 

 

Morgan Stanley has given Philip Morris International a Buy rating, along with a price target of $118. This indicates the firm's confidence in the stock's potential to generate favorable returns. In the premarket session, shares of Philip Morris International were trading flat at $96.80. This is within the 52-week range of $82.85 to $105.62.

 

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