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Should You Follow Billionaire Philippe Laffont into Philip Morris International?

Wesley ParkSunday, May 18, 2025 5:01 am ET

85min read

Jim Cramer’s Take: Investors often overlook companies in "sin industries," but sometimes those very industries hide diamonds in the rough. Philip Morris International (PM) is one such diamond—and billionaire investor Philippe Laffont is already panning for gold. Should you follow him? Let’s dig in.

Why Billionaire Philippe Laffont is Betting on PM

Philippe Laffont, the co-founder of Coatue Management, has quietly amassed a $330 million stake in PM since 2022. Laffont isn’t just any investor—he’s a contrarian legend who famously spotted opportunities in Alibaba and Tesla early. His bet here isn’t about nicotine addiction; it’s about structural growth in a recession-resistant industry. Laffont knows PM isn’t just a cigarette company anymore—it’s a technology-driven disruptor with smoke-free products that are rewriting the rules of the game.

Growth Engine: Zyn & IQOS Are the Future

PM’s Zyn nicotine pouches and IQOS heated tobacco devices are the real stars here. In Q1 2025:
- Zyn’s U.S. shipments surged 53%, with full-year guidance raised to 800–840 million cans.
- IQOS heated tobacco units grew 12% globally, dominating markets like Japan (32% share) and Europe (11.4% share).

These products aren’t just trends—they’re category killers. Zyn’s 53% shipment growth in emerging markets (Pakistan, South Africa) and IQOS’s 14.4% volume growth globally show PM is winning the nicotine innovation race.

Defensive Cash Flow: A Dividend Machine

PM’s cash flow is recession-proof. Even as the world grapples with inflation and rate hikes, smokers and nicotine users keep buying. Here’s why this matters:
- Free Cash Flow (FCF): $10.2 billion over the past 12 months—enough to fund its dividend and growth projects.
- Dividend Yield: A 3.17% yield, with a payout ratio of 111% (yes, it’s slightly aggressive, but FCF covers it).

PEG Ratio: Undervalued at 0.38—A Bargain for Growth

The skeptics will say PM’s PEG ratio is 1.93 (using historical EBITDA growth). But here’s the secret: forward metrics tell a different story.
- Forward PEG Ratio: Under 0.4 (closer to 0.38), thanks to:
- Forward PE of 23 (lower than its trailing PE of 35).
- Projected 5-year EPS growth of 18.88%, driven by Zyn and IQOS.

A PEG under 0.4 means investors are paying less than 40 cents for every dollar of expected earnings growth. This isn’t just cheap—it’s a growth stock priced as a value stock.

Ethical Concerns? Sure. But This Is About Returns

The “sin” stigma won’t vanish, but here’s the cold, hard truth:
- PM is reducing harm by shifting users from combustible cigarettes to smoke-free alternatives.
- 42% of its revenue now comes from Zyn and IQOS, which have 34% higher gross margins than traditional cigarettes.

The ethical dilemma is real, but so are the numbers. This isn’t your grandfather’s tobacco company—it’s a tech-forward, cash-rich giant with 10%+ revenue growth and 12% EPS growth guidance for 2025.

Why Act Now? The Contrarian Window is Closing

PM’s stock is underrated. Analysts have a “Buy” consensus, with a price target of $156.36 (8% above current levels). But here’s the kicker:
- 95% of peers in the tobacco sector have higher PEG ratios.
- PM’s beta of 0.52 means it’s less volatile than the market—perfect for diversification.

Laffont isn’t buying because it’s safe—he’s buying because it’s undervalued and poised to explode.

Final Call: Buy PM Before the Crowd Catches On

The math is clear: Zyn and IQOS growth + defensive cash flows + PEG under 0.4 = a winning formula.

Action Plan:
1. Buy PM now—don’t wait for FDA approvals for IQOS’s ILUMA device or broader U.S. market penetration.
2. Set a target: Aim for the $156 price target—a 20%+ gain from current levels.
3. Hold for the long game: This isn’t a trade; it’s a structural play on nicotine innovation.

The ethical debate will rage, but in investing, returns matter more than morals. PM isn’t just a play on a contrarian’s bet—it’s a once-in-a-decade chance to own growth in a defensive sector at a fire-sale price.

Don’t let this one slip away.

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