Philip Morris (PM) Defies the Naysayers as Smoking Stays Hot in 2025

Business Insider

20-06-2025

Imagine a tobacco stock surging 53% in six months—yet that's exactly what Philip Morris International (PM) has achieved, defying the usual stigma attached to sin stocks and a declining global smoker base. Unlike many of its peers, PM's story stands apart: its traditional cigarette business remains stable, heated tobacco products are experiencing rapid growth, and oral nicotine offerings are gaining momentum.
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Add a weak dollar boosting its predominantly international revenue, and it's clear PM's growth engine is running strong, justifying the rally and potentially signaling more upside ahead.
PM's Combustible Division Remains Steady
Cigarettes may seem like a dying product, but Philip Morris International's (PM) combustible division is proving otherwise. In Q1, cigarette shipment volumes rose 1.1% to 144.8 billion units, and organic revenue increased 4%, fueled by an 8.3% price hike. Marlboro's enduring brand strength, along with a 0.4% market share gain to 24.8% (excluding the U.S. and China), highlights PM's pricing power and market resilience. Strategic local manufacturing has also helped preserve margins amid rising raw material costs.
The results speak for themselves: combustible gross profit rose 5.3% organically, even with some headwinds from a commercial model change in Indonesia. PM's ability to raise prices without sacrificing volume underscores the strength of its brand. While the global cigarette market is shrinking by roughly 2% annually, PM's smart execution keeps the segment profitable, helping fund its transition to next-generation nicotine products.
IQOS Ignites Heated Tobacco Business Unit
If combustibles are PM's foundation, IQOS is the growth engine. Heated tobacco unit (HTU) shipments surged 14.4% to 37.1 billion units last quarter, while global in-market sales rose 9.4%, including a 9.3% increase in Japan, where IQOS now holds a commanding 32.2% market share.
Europe is also a key growth driver, with countries such as Hungary (41.9%) and Greece (34.4%) reporting impressive market penetration. Backed by $14 billion in R&D since 2008, IQOS now delivers higher margins than cigarettes, proving the investment is paying off.
The strength lies in PM's efficient scale and relentless innovation. Its multi-category approach—bolstered by launches like IQOS ILUMA in Japan—continues to deepen consumer loyalty. Even amid challenges like the EU flavor ban in Italy, PM has offset losses with strong double-digit growth in Spain and Germany. With 38.6 million adult users globally, IQOS is far from niche—it's a global force driving PM's next phase of growth.
ZYN's Meteoric Rise Opens Door to Oral Segment
Then there's ZYN, Philip Morris's nicotine pouch brand, which is rapidly gaining traction in the U.S. ZYN shipments soared 53% to 202 million cans last quarter, prompting the company to raise its full-year guidance to 800–840 million cans. International markets also contributed, with 53% growth in countries such as Pakistan and the UK. Thanks to margins exceeding 70%—about five points higher than those of combustibles—ZYN played a key role in helping smoke-free products contribute 44% of the total gross profit. Smart moves, such as early capacity expansions in March, ensured that supply kept up with demand.
But ZYN isn't just a U.S. story—it's a global growth play. With 182% volume growth in non-Nordic international markets, PM is leveraging its global distribution muscle and FDA clearances to accelerate expansion. The 27.2% volume growth in Q1 reflects PM's successful pivot toward discreet, high-margin alternatives that resonate with younger consumers and working professionals. It's a textbook example of how to spot and capitalize on shifting consumer preferences.
Not Too Pricey for the Growth
After an 80% rally, you might expect Philip Morris to be overvalued— but its forward P/E of 23, based on projected 2025 adjusted EPS of $7.36–$7.49, tells a more nuanced story. While that's not cheap for a tobacco stock, PM is far from typical. With 12–14% organic EPS growth forecasted for 2025—driven by 20.4% growth in smoke-free revenue and a weak dollar amplifying its 90%+ international earnings—this valuation appears well-supported.
The weak dollar, in particular, is an underappreciated tailwind, boosting earnings in key international markets, such as Japan and Europe. Add to that $180 million in Q1 cost savings and a $2 billion efficiency target by 2026, and PM is positioned to continue expanding margins despite headwinds such as tax pressures in India. Altogether, this creates a strong case for PM to deliver 15%+ EPS growth annually in the coming years, making today's valuation look not just justified, but compelling.
Is PM Stock a Buy or Sell?
Wall Street remains highly bullish on Philip Morris, with a Strong Buy consensus based on eight Buy and one Hold rating over the past three months, and notably, no Sell ratings. However, PM's average 12-month stock price target of $188.67 suggests a meagre 3.3% upside over the coming year.
PM Reinvents Itself as a Smoke-Free Growth Powerhouse
Philip Morris is no longer your grandfather's tobacco company. Its recent surge reflects a bold transformation toward smoke-free alternatives, with ZYN and IQOS driving growth while traditional cigarettes continue to generate solid cash flow. A weak dollar is further boosting its international-heavy revenue base, and with 12–14% EPS growth projected, PM's momentum looks far from accidental—it's the mark of a company redefining its future.
While its P/E of 23 isn't bargain-basement, it's a reasonable price for a business evolving into a modern, high-margin growth story. In my view, PM still appears to be an attractive option.