Philip Morris' Q1 Earnings Surpass Expectations, Morgan Stanley Bullish

Philip Morris International (PM.US) has been highlighted as a top essential consumer stock by Morgan Stanley, receiving an "overweight" rating. Analyst Dara Mohsenian noted that the company stands out in a challenging growth environment for consumer goods, thanks to its defensive product portfolio and the benefits derived from a weaker dollar. Among its large-cap peers, Philip Morris is recognized for having the highest long-term growth potential. However, the current stock price is approximately 27% below its theoretical fair value, based on an analysis of long-term organic sales growth and the price-to-earnings ratio for 2026. The analyst and their team anticipate that as Philip Morris' growth gap with its peers widens and the proportion of non-combustible products in its sales structure increases from 55% to 65% over the next five years, this discount will narrow.

The analyst stated, "Our base case is that organic sales growth (OSG) will remain at 6-8% over the next five years, with earnings per share growth at a fixed exchange rate of 9-11%. However, we believe the likelihood of Philip Morris achieving our bullish scenario (OSG above 9% and EPS growth of 11-13%) is increasing."

The tobacco giant reported first-quarter financial results that exceeded market expectations. The company attributed its robust revenue performance and expanding profit margins to sustained volume growth. Adjusted operating income was $3.79 billion, surpassing the market consensus of $3.61 billion. Earnings per share were $1.69, exceeding the market forecast of $1.61 and the previous year's $1.50. Notably, the company's non-combustible business accounted for 42% of total net revenue and contributed 44% of total gross profit this quarter. Its non-combustible products have been introduced to 95 markets, with multi-category non-combustible product portfolios deployed in 46 markets.