Philip Morris (NYSE:PM) is well-known for being a defensive stock as well as a dividend stock with a juicy dividend yield of 5.3%. These are great reasons to invest in the stock and are certainly a large part of its appeal. But there’s a lot more to like about Philip Morris, which has even more going for it when you look beneath the surface. The stock has plenty of potential avenues for growth ahead of it through popular smoke-free products like its Zyn nicotine pouches and IQOS smokeless tobacco products.
I’m bullish on this underappreciated large-cap consumer staples stock. The reasons why are its modest valuation, 5.3% dividend yield, steady and stable business, and exciting growth drivers like Zyn and IQOS, which make Philip Morris much more than just the typical defensive stock.
PM Stock’s Below-Market Valuation
Even after running up 8.3% over the past month, shares of Philip Morris are still relatively cheap. The stock trades at a modest valuation of 15.5 times consensus 2024 earnings estimates. While this isn’t necessarily so cheap that deep value investors are going to be pounding the table for it, it lends itself to the stock’s defensive mettle and leaves some room for upside on the table through valuation multiple expansion. It’s also a sizable discount to the S&P 500 (SPX), which currently trades at 22.6 times earnings.
Compelling Dividend
The dividend is one of the stock’s main calling cards. With a yield of 5.3%, shares of Philip Morris yield considerably more than the S&P 500, their consumer staples peer group, and even 10-Year treasury bonds. The company also has a long and proud history of returning capital to shareholders via dividends. It has increased its dividend payout every year since becoming a public company in 2008.
Smoke-Free Is the Way to Be
While the inexpensive valuation and attractive dividend yield are attractive selling points, the stock has much more to offer. If it seems like you’ve been noticing Zyn everywhere, you’re not wrong. The company’s oral nicotine pouch product has really taken off and reached a new level of mainstream popularity, with so-called ‘zynfluencers’ going viral on TikTok and several celebrities being spotted with the recognizable containers in tow.
Shipments of Zyn containers in the U.S. increased to 443 million on a rolling 12-month basis during the first quarter of 2024, the 25th straight quarter of growth for the popular product. During the first quarter of 2024, Zyn shipment volume grew by an incredible 79.3% year over year. Not only that, but shipments are now more than six times higher than they were during the first quarter of 2020, when the company shipped 69 million containers.
The category itself is growing, with Johns Hopkins University recently finding that unit sales of nicotine pouches (from all companies) increased rapidly from 126 million in the period of August to December 2019 to 808 million in the three-month period from January to March 2022.
And Zyn dominates this growing category. Philip Morris reported that for the fourth quarter of 2023, Zyn had a whopping 77.4% of the retail value share for the category.
To be clear, the product is not harm-free, but researchers have said it is a safer alternative to chewing tobacco and that it has fewer carcinogens than traditional oral tobacco products.
Zyn isn’t the only growth driver that Philip Morris has up its sleeve as it works to transition more of its customers to smoke-free products. Revenue from its IQOS heated tobacco product recently surpassed its popular Marlboro cigarettes in sales, a massive milestone.
Philip Morris is a global company, and it reports that smoke-free products like these now make up more than 50% of its net revenue in 25 of its markets around the world.
IQOS and ZYN combined to drive 25% smoke-free organic revenue growth during its impressive first quarter and a 38% increase in gross profit. These smoke-free products now make up approximately 39% of the company’s revenue.
The success of these smoke-free products gives Philip Morris some significant avenues for long-term growth and makes the company’s future a lot brighter than it would look if it were solely relying on cigarette sales. The revamped product mix is driving overall growth, as the company reported 3.6% organic shipment volume growth, 11.0% organic net revenue growth, and 22.2% organic operating income growth for the first quarter of 2024.
Is Philip Morris Stock a Buy, According to Analysts?
Turning to Wall Street, PM earns a Moderate Buy consensus rating based on eight Buys, three Holds, and one Sell rating assigned in the past three months. The average PM stock price target of $104.86 implies 6.7% upside potential.
The Takeaway: A Stock for All Environments
I’m bullish on Philip Morris, a stock that has something to offer to everyone. It trades for a below-market multiple and sports an attractive 5.3% dividend yield. And it’s not just a defensive play or income investment, as the success of its smoke-free products like Zyn and IQOS gives the company renewed runways for growth and a brighter future. I have a position in Philip Morris and view it as a sound investment opportunity in any economic environment, thanks to this compelling mix of attributes.
