Goldman sees 20% upside as Philip Morris moves to smoke-free products

Philip Morris shares have more room to run as the Marlboro maker continues to shift its focus from cigarettes to smoke-free products, according to Goldman Sachs. Analyst Bonnie Herzog has a $150 price target on the stock, which implies shares can jump 21% from Tuesday’s close. Herzog also reiterated her buy rating and called Philip Morris a top pick heading into 2025. “PM is transforming into a faster growing and more profitable business — an earnings compounder with an attractive valuation,” Herzog told clients in a note on Wednesday. “Bottom line, we believe many investors are not sufficiently appreciating PM’s improving/accelerating fundamentals and its compelling valuation.” Herzog said she is “incrementally bullish” on Philip Morris achieving long-term, double digit percentage growth in earnings per share. That comes as the company attempts to see two-thirds of its business tied to smoke-free products by 2030. The potential smoke-free market in the U.S. increases Philip Morris’s total addressable market by some 60%, according to Goldman Sachs estimates. Herzog said the company can expand the business mainly due to two products. First, she said the Zyn oral nicotine pouch has a continued runway after showing major growth. Zyn has become the public face of the move away from cigarettes toward alternatives. Philip Morris announced earlier this year that it would invest $600 million to build a new Zyn production facility in Colorado. Easing supply constraints for the product in the U.S. would help boost the stock, Herzog said. PM YTD mountain PM, year to date Herzog also said Philip Morris shares will benefit from the domestic debut of heated tobacco product Iluma. In addition to the Iluma rollout, she pointed to the possibility that fourth quarter earnings will top expectations and “the likelihood that initial FY25 guidance is robust” as additional catalysts for the stock in 2025. Philip Morris shares have jumped more than 33% in 2024. The stock hit all-time highs following what Herzog described as a a strong third-quarter earnings report late last month.