Philip Morris: Solid Q3 Results, But High U.S. Re-Entry Costs

(Preview) Company Update (PM US) (Buy)

Summary

• PM stock fell 1.7% on Thursday, with solid Q3 results overshadowed by news related to Altria's U.S. IQOS rights and Swedish Match.

• Q3 results showed stable volume trends and good pricing power, with IQOS continuing to dominate Heat Not Burn worldwide.

• PM will pay $2.7bn to regain its U.S. IQOS rights, and will spend more to either buy Swedish Match or to build its own U.S. platform.

• We expect continuing strong earnings growth and IQOS success in the U.S., but the trajectory may not be a smooth one.

• With shares at $85.03, we expect a total return of 57% (16.6% annualized) by 2025 year-end. The Dividend Yield is 6.0%. Buy.

Introduction

Philip Morris released Q3 2022 results on Thursday (October 20), announced an agreement to retake U.S. IQOS rights from Altria, and raised its bid for Swedish Match (“SWMA”). Both Philip Morris and Altria shares finished the day down, by 1.7% and 2.5% respectively.

We initiated our Buy rating on PM in June 2019. Since then, shares have gained 30% (includi…