Analyst Remains Confident Philip Morris' Heated Tobacco Product iQOS Could Reshape Company

Philip Morris International Inc. (NYSE: PM) sunk 15.6 percent Thursday after posting mixed earnings results, and analysts, although slicing expectations, defended the firm’s fundamentals.

The Rating

Stifel Nicolaus analyst Christopher Growe maintained a Buy rating on Philip Morris and cut the price target from $125 to $100.

The Thesis

Stifel attributed Thursday’s sell-off to an anticipated slowdown in Japan iQOS sales.

“The company is seeing more competitive activity in the Japanese market and the cost of acquiring consumers could be more expensive, especially with the company suggesting the difficulty in converting incremental consumers,” Growe said in a note.

The analyst said he views iQOS prospects more conservatively, and both extended the forecast for risk-reduced products’ 100-billionth sale from 2019 to 2020 and lowered 2018 HeatStick sales forecasts from 69 billion to 60 billions units.

“We continue to believe in iQOS and its power to reshape this company,” Growe said. “After one quarter of a minor setback in development in Japan, we are loath to change our long-term estimates significantly.”

Stifel increased 2018 earnings per share forecasts to account for higher FX and a lower tax rate, and Growe said he anticipates growth acceleration the following year.

Price Action

Philip Morris shares were down 0.31 percent at $85.36 after the open Friday.

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