Industry analysts predict that a slowdown is on the horizon for IQOS, the heat-not-burn tobacco product manufactured by Philip Morris International (PMI). This projection is expected to drive a de-rating for the company. Furthermore, the overall sector may witness a decline in the growth of next-generation products (NGP), which represent approximately 20% of industry revenues. These forecasts are primarily attributed to the rising popularity of heated tobacco alternatives.
Analysts believe that companies within the sector will likely fall short of their medium-term NGP targets, leading to a potential decrease in valuation. PMI, in particular, is regarded as one of the less favored stocks in the sector.
Instead of relying solely on quotes, our analysis, supplemented by UBS Empirical Scientific Approaches, indicates that PMI may struggle to achieve its heated tobacco volume target of 180-200 billion units by 2026. However, despite this setback, the company is expected to exhibit modest growth in organic sales and earnings per share (EPS) until 2026, driven predominantly by the strong performance of nicotine pouches. This is anticipated to result in an 8% to 10% increase in organic sales and EPS growth (EPS -3% compared to consensus estimates).
Nevertheless, the valuation premium currently attributed to PMI is heavily dependent on the success of IQOS. Any slowdown in the product’s growth is likely to lead to a de-rating for the company. With the anticipated decline in NGP growth within the sector as a whole, PMI’s valuation becomes vulnerable, necessitating a reassessment of its stock market prospects.
In summary, the projected slowdown in IQOS, along with the potential deceleration in NGP growth across the industry, is expected to have a substantial impact on PMI’s valuation. Although the company’s performance in nicotine pouches will help sustain organic sales and EPS growth, the reliance on IQOS and its slowdown presents a significant challenge for PMI’s market positioning in the foreseeable future.
Frequently Asked Questions (FAQ) based on the article:
1. What is IQOS?
IQOS is a heat-not-burn tobacco product manufactured by Philip Morris International (PMI).
2. What is the projected outlook for IQOS?
Industry analysts predict a slowdown for IQOS, which may lead to a de-rating for PMI.
3. What is the overall sector forecast for next-generation products (NGP)?
The overall sector may experience a decline in NGP growth, representing around 20% of industry revenues.
4. Why are heated tobacco alternatives gaining popularity?
The rising popularity of heated tobacco alternatives is considered a primary reason for the projected decline in IQOS and NGP growth.
5. What is the impact of the projected slowdown on PMI’s valuation?
Any slowdown in IQOS’s growth is likely to result in a de-rating for PMI, impacting its valuation.
6. Will PMI struggle to achieve its heated tobacco volume target?
Based on UBS Empirical Scientific Approaches, PMI may face challenges in achieving its heated tobacco volume target of 180-200 billion units by 2026.
7. How is PMI expected to perform in terms of sales and earnings?
Despite the potential setback in IQOS, PMI is expected to witness modest growth in organic sales and earnings per share (EPS) until 2026, primarily driven by the performance of nicotine pouches.
8. What is the anticipated increase in organic sales and EPS growth for PMI?
PMI is expected to experience an 8% to 10% increase in organic sales and EPS growth, with EPS dropping by 3% compared to consensus estimates.
9. How is PMI’s valuation premium currently dependent?
PMI’s valuation premium is heavily dependent on the success of IQOS. Any slowdown in IQOS’s growth is likely to impact the company’s valuation.
10. What should be considered regarding PMI’s stock market prospects?
With the projected decline in NGP growth across the industry, PMI’s valuation becomes vulnerable, requiring a reassessment of its stock market prospects.
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