According to Morgan Stanley on June 27, Philip Morris International (PMI) is the top pick for the food and tobacco industry. Analyst Pamela Kaufman noted the stock’s attractive 4:1 risk-return ratio and said the recent pullback has created an attractive entry point for investors.
Morgan Stanley announced the main reasons for the PMI selection, including the launch of ILUMA, and the rapid growth of ZYN (PMI nicotine bags) in the United States, they have IQOS trends and international expansion opportunities.
In terms of valuation, PMI is called attractive compared to its peers in the consumer goods sector.
“We believe PMI’s business structure has improved, with strong pricing power and expansion opportunities in the U.S. market, and the starting price remains attractive,” Morgan Stanley said. PMI trades at 14.5 times NTM earnings, a 14 per cent discount to its average of 16.8 times over the past 10 years. The stock trades at a 37% discount to the consumer staples sector (compared to an average of 20% over the past 10 years) and more than a 26% discount to the S&P 500 (average discount of 2%).”
On the balance sheet, PMI expects to resume share buybacks and increase its dividend by 3% annually.
Morgan Stanley has a buy rating on PMI with a price target of $118.
PMI’s stock was flat in premarket trading at $96.80, compared with a 52-week range of $82.85 to $105.62.