Analyst Note| Philip Gorham, CFA, FRM |
We have thought for years that the cigarette portfolio alone, which skews to the premium segment and contains Marlboro, the world's largest cigarette brand, made Philip Morris International, or PMI, the quality pick of the tobacco group. It is now clear the success of the firm's reduced risk products, or RRPs, has given PMI even stronger competitive advantages. We are raising our fair value estimate to $108 per share from $98, driven by the assumptions of medium-term margin expansion and faster near-term revenue growth, following an update from management at the company's investor day. We remain constructive on PMI's shares, which trade at just 13.5 times our estimate of 2022 earnings and offer a 6% forward dividend yield. We see less upside than for other tobacco firms, particularly Imperial Brands, but we see clearer catalysts to unlocking the upside with PMI.