Philip Morris: Strong Sales, Lower Health Risks From Smokeless Products

Investment Thesis - Philip Morris is transitioning from a cigarette-centric business model to a focus on smoke-free products, aiming to become substantially smokeless by 2030, with smoke-free products expected to generate over two-thirds of total net revenues [2][13] - The company reported strong performance in Q2 2024, with revenues of $9.47 billion, exceeding analyst estimates of $9.19 billion, driven by increased demand for Zyn nicotine pouches and other smokeless solutions [2][5] - Adjusted earnings per share (EPS) growth is now projected between 11% and 13%, an increase from the previous range of 10% to 12% [2][5] - The total shipment volume of smoke-free products increased by 20.2% year-over-year in the first half of 2024, supported by strong demand in key markets like Japan and Europe [2][4] Market Performance - Philip Morris's revenue growth year-over-year stands at 12.21%, significantly outperforming the sector median of 2.34% [5] - The company reported a 22.2% year-over-year increase in gross profit for smoke-free products, compared to a 4.8% increase in combustibles [5][6] - Smoke-free products accounted for $5.86 billion in net revenues in Q2 2024, up from $5.41 billion in the previous quarter [4] User Adoption - As of June 30, 2024, there were 36.5 million adult users of Philip Morris's smoke-free products, reflecting an addition of 3.2 million users in the first half of the year [6][9] - The company claims to have transitioned 20.8 million people from smoking cigarettes to smokeless devices, indicating a significant public health impact [2][8] Production and Investment - Philip Morris has invested $12.5 billion since 2008 in developing smoke-free products and plans to invest $600 million in a new manufacturing facility in Colorado to meet rising demand [4][7] - The company is expanding production capabilities to address supply constraints, with expectations of increased production volumes in Q4 2024 [11][12] Valuation - Philip Morris's forward PEG ratio is 1.87, indicating it may be undervalued relative to earnings growth prospects compared to the sector median of 2.11 [10] - The company's 3-5 year EPS Compound Annual Growth Rate (CAGR) is projected at 9.24%, slightly above the sector median of 8.03% [10]