$200 in Sight for Philip Morris Stock Following Combustive Q4 Earnings Results

Tobacco seller Philip Morris International (PM) recently soared to new heights on the back of its blockbuster Q4 2024 earnings results, thereby throwing its hat into the ring as a titan value and growth stock rolled into one. Based on my experience monitoring the tobacco industry’s ever-shifting landscape, I would argue there is plenty of room for more upside.

From strong results in traditional combustibles to rapid gains in heated tobacco units (HTUs) and oral nicotine products, Philip Morris continues to lead in the space. PM’s momentum is only gaining steam, yet the market valuation is lagging. That can only mean bullishness is warranted for this smoky profiteer.

A Surprising Surge in Combustibles

Despite a broad shift away from traditional tobacco, Philip Morris’ Q4 results showed an available market capacity for expansion in combustibles. For years, unease about falling smoking rates and challenging regulatory environments have weighed heavily on the entire industry. Philip Morris has certainly felt that pressure, historically witnessing mid-single-digit declines in cigarette shipments.

Yet, as we’ve seen in the most recent quarters, this story has more nuance than many expected. In Q4 specifically, cigarette shipments climbed by 1.1% year-over-year, catching analysts off guard. A few key markets stood out, including Turkey, India, and Egypt, where combustible demand has remained unexpectedly robust. Moreover, Philip Morris’ emphasis on premium pricing, which drove high-single-digit price increases, pushed organic revenue for the combustibles segment up by 6.2%.

This revenue boost, mainly due to higher prices, resulted in a 10.8% spike in gross profit for combustibles. That’s quite a victory, given the many issues tobacco companies have wrestled with. So, while I’m still keeping a close eye on regulatory strains, I think it’s fair to say that the resilience in traditional cigarettes makes for a solid foundation for Philip Morris stock.

Smoke-Free Takes Center Stage

In addition to the strong performance of combustibles, Philip Morris’s smoke-free products have also delivered great results. Its HTU and oral nicotine categories recorded double-digit gains in Q4, emphasizing Philip Morris’ leadership in transitioning smokers to less harmful alternatives. Total smoke-free net sales neared a staggering $15 billion in 2024, accounting for roughly 40% of the company’s total net sales and an even higher share of its gross profit.

Heated tobacco shipments hit 139.7 billion units for the entire year, up 13.5% year over year. This increase was powered by gains in Japan and Europe, where the IQOS ILUMA line, in particular, has found real traction thanks to its refined design and improved user experience. At this point, IQOS has over 38.5 million adult users worldwide, which is undoubtedly an impressive statistic that demonstrates Philip Morris’s strong foothold in the HTU market.

Meanwhile, ZYN continues to blaze a trail in the oral nicotine category. In the United States alone, Q4 shipments jumped by 42%, totaling 165 million cans. Moreover, some of the supply-chain issues that once cramped ZYN’s growth are beginning to subside, and Philip Morris now forecasts shipments topping 800 million cans in 2025. Beyond the U.S., ZYN is now offered in 37 markets worldwide, stressing the company’s incredible capacity to scale up profitable products quickly.

Outlook for 2025: More Records in Sight

Looking ahead, Philip Morris projects 6% to 8% organic revenue growth for 2025. This is expected to be primarily fueled by double-digit HTU expansion and continued gains in the oral category. Even with the regulatory uncertainties present, ranging from flavor bans in the EU to shifting tax structures globally, the company appears set to benefit from a strong pipeline of product innovations and the broader consumer acceptance of smoke-free alternatives.

However, what I found more noteworthy was the guidance for adjusted EPS growth of 10.5% to 12.5% on a currency-neutral basis, which signals another year of record-setting profitability.

Valuation: Still Appealing, Even at All-Time Highs

Despite the share price surge, Philip Morris remains attractively valued relative to other quality consumer staples. The stock seems priced or cheap at about 21x 2025 earnings estimates, given its accelerating revenue growth, strong margins, and the kind of brand loyalty and cash flow predictability most consumer companies can only dream about.

Add in 2024, marking the 17th consecutive year of dividend increases, and you have a powerful blend of growth and income from a quality company in the space. In fact, with institutional investors increasingly viewing Philip Morris as a growth stock, I expect the current valuation expansion narrative to shift even more, allowing the stock’s valuation to move toward the mid-20s. Thus, there is no reason to believe the recent share price surge will limit shareholders’ total return prospects in the near term.

Is PM a Good Stock to Buy?

Looking at Wall Street’s view on the stock, Philip Morris now features a Moderate Buy consensus rating based on five Buy, zero Hold, and one Sell ratings obtained over the past three months. PM’s average price target of $150.50 per share implies less than 1% upside potential compared to current levels. However, I expect multiple analysts to revise their targets upwards in the coming days.

See more PM analyst ratings

Tobacco Titan Has Room to Run

I see Philip Morris as a standout in a legacy industry rapidly reinventing itself. Given its laser focus on next-generation products and enduring growth in legacy combustibles, the company offers the best of both worlds. While risks like regulation and tax hikes shouldn’t be ignored, I believe the stock is positioned to thrive in the coming years, especially given that its valuation seems fair. Despite hitting new highs, Philip Morris may just be warming up.

Disclosure