Investors may not fully appreciate how much next-generation products, or NGPs, can help Philip Morris , Citi said. Analyst Simon Hales upgraded the tobacco stock to buy from neutral and raised his price target by $8 to $117. His new target implies shares can gain 23.3% over the next year. “Tobacco has de-rated sharply in recent years as the low-growth outlook for cigarettes and ESG considerations have weighed on stocks,” Hales said in a note to clients, using the acronym for the environmental, social and governance investing framework. “However, with NGPs contributing meaningfully to industry and PM’s performance in particular, we believe investors are at risk of structurally under-valuing this evolving segment.” Shares rose 1.4% before the bell. The Marlboro parent’s stock has lost 6.2% this year, underperforming the broader market. PM .SPX YTD mountain Philip Morris vs. the S & P 500 Hales said the company as at the “forefront” of the transition away from combustibles and is on track to hit its target of having more than half of Philip Morris’ net revenue from smoke-free products. Those smoke-free products have helped stabilized nicotine after combustibles’ fall from grace. In fact, Hales said sales of Philip Morris’ heated tobacco products should grow at a five-year compound annual rate of around 18%. That growth should help margins, he said. The market hasn’t fully priced in the value of the company’s future growth and cash flow opportunities, he said, which is especially apparent given that the stock trades at a 26% discount to U.S. staples. Hales also added a three-month positive catalyst watch on the stock. After an uninspiring first quarter, he said second-quarter trading momentum should accelerate and delivery will likely come in at the upper end of the expected range set by management. — CNBC’s Michael Bloom contributed to this report.
