Is Philip Morris International (PM) the Best Defensive Stock to Buy Right Now?

Philip Morris International (PM) has long been a staple in the tobacco industry, known for its iconic Marlboro brand and a strong global presence. As the company continues to evolve, focusing on reduced-risk products (RRPs) and a smoke-free future, investors are wondering if PM is the best defensive stock to buy right now. This article will explore PM's defensive qualities, its potential for long-term growth, and the competitive landscape to help you make an informed decision.

Defensive Qualities of PM

1. Diversified Product Portfolio: PM's commitment to RRPs, such as IQOS, has helped the company mitigate risks associated with declining cigarette sales. In 2023, nearly 40% of PM's revenue came from smoke-free products, with the goal of reaching two-thirds by 2030. This diversification allows PM to adapt to changing consumer preferences and regulatory environments.
2. Geographic Diversification: PM operates in over 180 markets, with a strong presence in both developed and emerging economies. This diversification helps PM mitigate risks associated with economic downturns, regulatory changes, and political instability in any single region. In the first quarter of 2024, PM's smoke-free business accounted for almost two-thirds of revenue in the EA, AU & PMI DF region, led by Japan and Korea.
3. Strong Financial Performance: PM's strong financial performance and cash flows have enabled it to weather economic downturns. In 2023, PM's reported diluted EPS grew by 7.8% to $1.38, and adjusted diluted EPS grew by 8.7% to $1.50. This resilience demonstrates PM's ability to maintain profitability even during challenging economic conditions.



Potential for Long-Term Growth

1. Investment in RRPs: PM has invested over $8 billion in the development and commercialization of RRPs, demonstrating its commitment to a smoke-free future. This investment is expected to account for more than 50% of its total net revenues by 2025. The market for RRPs is expected to grow at a CAGR of 15.8% from 2021 to 2028, providing PM with significant growth opportunities.
2. Market Acceptance of IQOS: IQOS, PM's leading RRP, has gained substantial market acceptance. In the first quarter of 2024, IQOS HTU market share exceeded 10% for the first time in Europe, with adjusted IMS growth of 9.4%. In Japan, IQOS HTU market share increased by more than 3 percentage points to over 29%, with adjusted IMS growth of 13.3%. This market acceptance bodes well for PM's long-term growth prospects.
3. Expansion into New Markets: PM is actively expanding its RRP offerings into new and emerging markets, which can provide new revenue streams and help mitigate risks associated with declining cigarette sales in established markets. This expansion strategy contributes to PM's long-term growth potential.

Competitive Landscape

While PM faces competition from other tobacco companies, such as British American Tobacco and Altria, its strategic initiatives and focus on RRPs offer a competitive edge. PM's commitment to a smoke-free future, coupled with its strong brand recognition and market dominance, positions it well to maintain its market share and drive long-term growth.

In conclusion, PM's defensive qualities, potential for long-term growth, and competitive landscape make it an attractive investment option for those seeking a defensive position in the consumer defensive sector. PM's geographic diversification, strong financial performance, and commitment to RRPs have enabled it to maintain growth and profitability despite challenges in the traditional tobacco market. As PM continues to evolve and adapt to changing consumer preferences and regulatory environments, it remains a strong contender in the tobacco industry.