UBS analyst Robert Rampto downgraded tobacco giant Philip Morris to Neutral from Buy, and lowered his price target to $80 from $90. He’s “waiting for a better entry point” in Philip Morris stock.
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Philip Morris International stock has dipped 10.5% in 2020, and one former bull now thinks its underperformance is unlikely to change.
UBS analyst Robert Rampto downgraded Philip Morris (ticker: PM) to Neutral from Buy, and lowered his price target to $80 from $90, writing that he is now “waiting for a better entry point.”
Rampto’s prior Buy rating was based on his believe that Philip Morris’s heat-not-burn tobacco product iQOS would allow the company to deliver one of the best growth rates in staples, boosting its stock. Indeed, iQOS has delivered strong growth ahead of expectations, and he’s modeling for Philip Morris to deliver 5% growth in the four-year period ending in 2023, putting it third out of fifty staples stocks.
That sounds like a great setup for the shares, but Rampto warns that despite this, he thinks that Philip Morris stock is unlikely to rerate meaningfully for three reasons. The first is worries about excise taxes, the second is online-search-trend data that could indicate slowing iQOS growth, and the third is accelerating ESG—environmental, social and governance—investing that typically eschews tobacco holdings.
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While he does think that Philip Morris can outperform even if excise taxes are implemented—a likely consequence of a uncertain economic environment that Covid-19 has caused—he thinks it will “time before the resilience of the business becomes clear.”
In addition, while it may not be right to judge Philip Morris solely on the success of iQOS, for now the market appears to be doing so, and his analysis of Google Tend data, which “has anticipated every slowdown and acceleration in iQOS growth since launch [shows that] search has now plateaued in most markets.” That leads him to tweak his growth estimates lower for the product. (Other bulls, however, believe that iQOS growth will continue to be driver for the shares.)
By contrast, he prefers British American Tobacco (BTI), which has less exposure to the headwinds facing Philip Morris, and thus a better chance of seeing its valuation expand.
Philip Morris is down 0.8% to $76.13 in recent trading.
Write to Teresa Rivas at [email protected]
