Tobacco company Philip Morris International (PM), known for its iconic Marlboro cigarettes, is steadily moving beyond the tobacco and nicotine segment and towards a smoke-free future through innovative products such as iQOS and ZYN. After releasing its third-quarter results, the company drew attention for raising its full-year guidance, signaling confidence despite some near-term headwinds.
For income investors, it’s easy to see why this stock has been a long-time favorite. Companies that pay dividends typically offer stability and steady cash flow, especially when markets become unstable. Philip Morris fits the bill in that regard. It has raised its dividend for more than a decade, and its latest increase (a nearly 9% increase) brought its yield closer to 4%.
Still, shares fell after earnings as expectations rose. But some analysts remain optimistic and see this pullback as a favorable entry point.
If you’re looking for growth, high-flying stocks may catch your attention. But for those looking for stable income and less volatility, a reliable dividend stock makes more sense. So, with PM stock nearly 15.5% below its June high of $186.69, could this drop be the perfect entry point for a steady, income-focused addition to your portfolio?
Philip Morris International, headquartered in Stamford, Connecticut, is one of the largest tobacco companies in the world. PMI, spun off from Altria (MO) in 2008, sells cigarettes and smoke-free products in global markets. With a workforce of more than 83,000 people, the company is moving toward a smoke-free future, using science and innovation to offer alternatives that aim to reduce harm to consumers, society and shareholders alike. Its market capitalization currently stands at about $244.2 billion.
Tobacco stocks might seem like a shaky bet at first glance: Smoking rates are falling around the world and traditional tobacco faces growing regulatory pressures. However, when we look at the stock’s long-term performance, the picture tells a very different story. Since its public debut, PM has rallied nearly 212% and, with dividends reinvested, has generated a staggering total return of 626%.
In the last two years alone, PM stock is up 68%, and in the last 52 weeks, it’s up 12%. Year-to-date (YTD), the rally has been even more impressive, with shares rising about 22%, nearly 36% from January lows of $116.12.
In the short term, the stock has shown more volatility. Over the past month, it fell 10% and on October 21, PM fell as much as 9.9% in pre-market trading despite strong gains. The sharp swing was quickly corrected, and in the next trading session, the stock rallied 3.2%, likely driven by bullish comments from analysts. Trading volume on the earnings day exceeded 21 million, highlighting increased investor interest.
From a technical perspective, PM momentum indicators are showing intriguing signals. The 14-day Relative Strength Index (RSI) rose, suggesting the stock is regaining buying interest after recent declines.
Meanwhile, the MACD oscillator is indicating potential bullish momentum, with the yellow MACD line crossing above the blue signal line, a classic bullish signal hinting that the recent pullback may be setting the stage for a new bullish move.
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Philip Morris isn’t exactly a budget choice right now. The stock trades at 20.9 times forward adjusted earnings and 6.1 times forward sales, ranking well above historical and industry averages. It’s the kind of premium investors are willing to pay for a company in transition: one that moves beyond its cigarette past and reshapes itself around smoke-free innovation and steady global demand.
Even as Philip Morris reshapes itself around smoke-free innovation, the loyalty of its shareholders remains intact. The company has increased dividends for 18 consecutive years and in September paid a quarterly dividend of $1.47 per share. That’s an increase of 8.9%, the largest since 2013. The annual forward dividend of $5.88, which offers a yield of 3.9%, beats the S&P 500 SPDR’s (SPY) 1.09%. As interest rates fall, that yield becomes even more attractive.
A payout ratio of 74.7% indicates that returning cash to investors is a priority, even with no share buybacks planned for 2025.
Philip Morris reported its third quarter earnings on October 21 with results that exceeded expectations. However, the market reaction was a bit confusing, as despite the strong numbers, the stock fell and investors focused on the company’s cut operating income guidance. Revenue was $10.8 billion, up 9.4% year-over-year and 5.9% organic, driven by firm combustible tobacco prices and a continued push for smoke-free products. The company’s adjusted earnings per share rose 17.3% year over year to $2.24, handily beating estimates, thanks to record smoke-free earnings and solid margins.
Behind the figures lies a story of transformation. The one-time cigarette-driven titan is constantly reinventing itself around smoke-free alternatives, a move that is clearly paying off. Smoke-free revenue increased 17.7% and 13.9% organically, now representing 41% of total sales. Its shipping volumes increased by 16.6%. The fuel sector, although it showed growth of 4.3%, reflected the expected drop in volume, cushioned by strong price increases. Cigarette volumes declined 3.2% in the third quarter, near the more favorable end of their forecast 3% to 4% decline for the second half of the year and reflecting better-than-expected dynamics in Turkey and Egypt. Total shipping volumes increased slightly to 204.9 billion units.
Adjusted operating income rose 12.4% to $4.7 billion, driven by favorable pricing and product mix, although higher marketing and research and development expenses had a small impact. The company closed the quarter with $4 billion in cash, $46 billion in net debt and a shareholder deficit of $9 billion, figures that reflect the intense investment phase that Philip Morris is in.
Looking ahead, 2025 is shaping up to be another decisive year. Adjusted EPS is now forecast between $7.46 and $7.56, implying growth between 13.5% and 15.1%. Total volumes of cigarettes and smoke-free products are expected to increase by around 1%, driven by a 12-14% increase in smoke-free units that should more than offset a 2% drop in cigarette volumes.
Organic revenue growth is pegged at 6% to 8%, while operating cash flow is expected to be over $11.5 billion and capital expenditures around $1.6 billion, the bulk of which will go towards driving its smoke-free revolution. Additionally, management estimates that the net debt/adjusted EBITDA ratio will improve, targeting a ratio of around double by the end of 2026.
Despite the strong numbers, management cut its outlook for organic operating revenue growth to a range of 10% to 11.5%, pointing to increased investments in the US largely concentrated in the third quarter. The company also noted inventory adjustments tied to its ZYN product, which are expected to influence fourth-quarter results, indicating a short-term trade-off for long-term market positioning.
Analysts following the company project its EPS to be around $7.51, up 14.3% year-over-year, by fiscal 2025, with another 11.6% increase to $8.38 in fiscal 2026.
After Philip Morris abandoned its third-quarter report, Wall Street analysts quickly weighed in, with most seeing the recent decline more as an opportunity than a warning sign. Goldman Sachs maintained its “Buy” rating and a $200 price target, calling the sell-off “overblown.” Analyst Bonnie Herzog described the stock as offering “a good entry point,” pointing to a long path of accelerated growth fueled by iQOS and ZYN’s growing market presence.
Optimism also remained strong at Stifel. The bank reiterated its “Buy” rating with a target of $180, considering slowdowns related to heated tobacco and ZYN inventory to be temporary. Stifel expects Philip Morris to maintain its strong momentum in revenue and earnings per share compared to peers, noting that its strong brand equity and pricing power remain key advantages.
Even Morgan Stanley, while cutting its target to $175, maintained an “overweight” stance. The firm acknowledged investor concerns about ZYN’s slower growth and promotional pressures, but remains optimistic about Philip Morris’ move to a smoke-free environment. Highlighting revenue growth from smoke-free products, with IQOS’s international push and planned US launch in mid-2026 setting the stage for further gains ahead. Morgan Stanley views ZYN’s near-term drag as more optical than structural, reinforcing that the company’s transformation story is far from over.
The stock has an overall consensus rating of “Moderate Buy,” demonstrating faith in Philip Morris’ resilience, though not without restraint. Of the 15 analysts covering the stock, nine recommend a “Strong Buy,” two label it a “Moderate Buy,” and four analysts remain cautious with a “Hold” rating.
The average analyst price target for PM is $193.46, indicating a potential upside of around 32%. Meanwhile, the Street’s highest price target of $220 suggests the stock could rise as much as 50%.
Philip Morris definitely generates mixed opinions and it’s easy to see why. Some people worry about volume swings, regulatory hurdles and how consumers are moving away from traditional cigarettes. But PM has been quietly playing the long game. Its smoke-free products, from heated tobacco to oral nicotine, are gaining traction, and the U.S. markets, while complicated, still have huge advantages.
Regulation: Believe it or not, it actually strengthens your moat by keeping out small competitors. Add to that strong cash flow, margin growth, and nearly two decades of dividend increases, and it’s clear that PMI is evolving. Of course, near-term headwinds will spark debate, but for investors who value stable earnings and innovation-driven growth, PM remains a stock that quietly delivers results, year after year. It’s a classic combination of stability and long-term potential.
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On the date of publication, Sristi Suman Jayaswal had no positions (either directly or indirectly) in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com
