Philip Morris International Faces Stock Challenges
Philip Morris International has once again faced disappointing guidance, contributing to its stock’s underperformance. Investors seem to be pricing the company lower than other consumer staples, likely due to the stigma around its tobacco business.
Despite this, there is potential for the stock’s valuation to improve as acceptance of “reduced harm” nicotine and tobacco products increases in the market. Philip Morris reported its latest quarterly earnings on October 21, showcasing “beat and raise” results for the second consecutive quarter. However, the updated guidance did not meet Wall Street’s expectations.
The stock experienced a pullback, though not as steep as the decline following its July earnings report. Investors appear to be buying the dip, but questions remain about Philip Morris International’s ability to reach its previous highs or set new ones.
The market’s reluctance to value this “sin stock” at levels similar to other blue-chip consumer staples remains a significant issue. Yet, there is a possibility for valuation adjustments in the future. The company’s recent earnings exceeded analyst expectations, with a 5.9% year-over-year revenue growth and a 17.3% rise in adjusted earnings per share. Growth continues to be driven by its “smoke-free” business segment.
Philip Morris has taken a more aggressive approach than many of its peers in moving away from traditional cigarettes, with products like the Iqos heated tobacco device and Zyn nicotine pouches driving 41% of total revenue. Although the company’s growth is outpacing its competitors, including Altria Group, it wasn’t enough to satisfy investors.
For the full year of 2025, PMI’s adjusted earnings per share guidance suggests a slight increase, but investors were hoping for a more significant upward revision. Despite this, PMI has consistently demonstrated strong earnings growth, averaging 15.7% over the past five quarters.
Regulatory conditions for “reduced harm” tobacco products in the U.S. are becoming more favorable, which may ultimately enhance investor confidence. With a growing user base for nicotine pouches and limited overlap with Philip Morris’s existing cigarette sales, the company stands to benefit considerably in the long run. Thus, with continued earnings growth and potential for valuation expansion, PMI remains an appealing investment option at present.
