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Price: $193.12
Discount category: Close to intrinsic value
Next earnings: 2027-02-05
Next earnings is estimate: Yes
Company name: Philip Morris International
Sector: Tobacco and nicotine products
About: Philip Morris International (PMI) sells cigarettes and smoke-free nicotine products outside the United States, and smoke-free products in the United States. Its main cigarette brand is Marlboro. Its main smoke-free products are IQOS heated tobacco devices with their tobacco sticks, and ZYN nicotine pouches, which came with the purchase of Swedish Match. Since 2026, PMI reports three segments: International Smoke-Free, International Combustibles and US. Altria, a separate company, sells Marlboro cigarettes in the United States. Revenue was more than $40 billion in 2025 and $11.4 billion in Q3 2026. Smoke-free products gave more than 40% of revenue in Q3 2026, and PMI sells them in 110 markets.
Thesis: The market doubts that PMI can grow its smoke-free products fast enough to offset falling cigarette volumes and to reduce its high debt. In Q3 2026, revenue grew 5.5% and adjusted diluted EPS grew 5.4% to $2.36. But heated tobacco unit shipments grew only 1.5%, and US ZYN shipments grew 4.2% after the inventory changes of early 2026. US revenue grew 22.7% in Q3 2026, but US operating companies income fell 3.3%. PMI guides 2026 adjusted diluted EPS to $8.29 to $8.44, which includes a currency gain of $0.18. Its targets for 2026 to 2028 are organic revenue growth of 6% to 8% a year and adjusted EPS growth of 9% to 11% a year at constant currency, with no share buybacks. Investors fear three things. IQOS growth can slow as its markets mature. ZYN can lose share as competitors grow in the US pouch market. Debt and the assets in Russia limit how much cash PMI can return in addition to its dividend. For the gap to close, three things must be true. IQOS in-market sales must keep growing near the 7.1% of Q3 2026. US ZYN shipments and US profit must grow again at a fast rate. PMI must reach its target of net debt near 2.0 times adjusted EBITDA by the end of 2026. The Q4 2026 report, expected in early February 2027, gives the 2027 guidance and the first test against the targets. An FDA decision on the IQOS ILUMA application, which has no date, is a second test. If the 2027 guidance matches the targets, the gap can close within about one year.
Risks: Cigarettes still give most of the revenue, and their volumes fall each year. Higher taxes, rules on flavors and smoking bans can make the fall faster. Smoke-free products need FDA authorization in the United States. The IQOS ILUMA application has been pending since the FDA accepted it in March 2024. Competitors in nicotine pouches also grow, and US profit fell in Q3 2026. PMI had $47.6 billion of debt at September 30, 2026, mainly from the Swedish Match purchase, and its targets for 2026 to 2028 include no share buybacks. Higher interest rates on new debt can lower earnings. PMI had $5.6 billion of assets in Russia at September 30, 2026, including $3.1 billion of cash, and Russia gave about 7% of revenue. Sanctions or government action can make PMI lose these assets or this income. Most sales are outside the United States, so a stronger US dollar lowers reported results. Currency adds $0.18 per share to the 2026 adjusted EPS guidance. A new Chief Financial Officer started on August 1, 2026. A change in financial policy, such as the return of buybacks or a new purchase, can change the debt plan.
Balance sheet: Cash: $6.7B Debt: $47.6B Net debt: $40.9B Interest cover: 20× Undrawn credit line: $6.0B, to September 2028 Debt due within 12 months: $5.9B Last debt due: 2044 Ratings: Moody's A2 (positive outlook), S&P A- (positive outlook), Fitch A (stable outlook) PMI has high but stable debt. Stockholders' equity was a deficit of $5.9 billion at September 30, 2026, after many years of dividends and past buybacks. Long-term debt had a carrying value of $45.0 billion, of which $3.3 billion was due within one year, and short-term borrowings were $2.5 billion, including $1.9 billion of commercial paper. The rest of the euro term loan from the Swedish Match purchase, $1.7 billion, is due in June 2027. PMI had $6.0 billion of undrawn committed revolving credit, with end dates from September 2028 to January 2031. Operating income was $13.3 billion and net interest expense was $679 million in the first nine months of 2026. PMI expects operating cash flow of about $13.5 billion and capital spending of $1.4 billion to $1.6 billion in 2026, and net debt near 2.0 times adjusted EBITDA by the end of 2026. It paid $6.9 billion of dividends in the first nine months of 2026 and does not buy back shares. As of 2026-09-30.
Checkpoints: Feb 5, 2027 (estimate): Q4 2026 results and 2027 guidance. Pending. Watch: 2027 guidance for adjusted EPS growth of 9% to 11% at constant currency with growing IQOS and ZYN volumes passes; lower guidance or falling US profit fails. 2027 (estimate): FDA decision on IQOS ILUMA. Pending. Watch: An FDA authorization that lets PMI sell IQOS ILUMA in the United States passes; a denial or a delay of more years fails.
Recent events: 2026-10-21: PMI reported Q3 2026 results. Revenue grew 5.5% to $11.4 billion, or 7.1% on an organic basis, and operating income grew 14.1% to $4.9 billion. Reported diluted EPS fell 4.9% to $2.12, and adjusted diluted EPS grew 5.4% to $2.36. Heated tobacco unit shipments grew 1.5% to 41.5 billion units, and US ZYN shipments grew 4.2% to 3.2 billion pouches. PMI guided 2026 adjusted diluted EPS to $8.29 to $8.44. The quarterly dividend is now $1.60 per share, up 8.8%. 2026-08-21: The FDA authorized 11 ZYN ULTRA products under the premarket tobacco product application process. 2026-07-22: PMI reported Q2 2026 results. Revenue was $11.2 billion, and adjusted diluted EPS grew 15.2% to $2.20. Reported diluted EPS was $1.80, after an impairment charge on its investment in RBH in Canada. 2026-06-30: The FDA authorized 20 ZYN products as modified risk tobacco products. 2026-06-29: PMI paid back €1.0 billion of the euro term loan from the Swedish Match purchase before its due date. About €1.5 billion of the loan is left, due June 23, 2027. 2026-05-20: PMI named Massimo Andolina Chief Financial Officer from August 1, 2026, in place of Emmanuel Babeau. 2026-04-22: PMI reported Q1 2026 results. Revenue was $10.1 billion, reported diluted EPS was $1.56 and adjusted diluted EPS grew 16% to $1.96. US results were weak because of changes in ZYN inventory. 2026-02-06: PMI reported 2025 results. Revenue was more than $40 billion, reported diluted EPS was $7.26 and adjusted diluted EPS was $7.54. PMI set targets for 2026 to 2028 of organic revenue growth of 6% to 8%, organic operating income growth of 8% to 10% and adjusted EPS growth of 9% to 11% a year at constant currency, and it changed to three new segments.