Philip Morris International Inc. (PM.US) financial report eve: Goldman Sachs Group, Inc. supports $205 target price, optimistic about the valuation restructuring of smokeless transformation.

Goldman Sachs Group, Inc. analyst Bonnie Herzog reiterated her "buy" rating on Philip Morris International Inc. (PM.US) ahead of the company's fiscal first quarter earnings report on April 22 (Wednesday). The core logic behind Goldman Sachs Group, Inc.'s bullish outlook is not limited to traditional financial growth, but highly appreciates the recent strategic adjustments the company has made to its financial reporting structure. Philip Morris International Inc. has disclosed its financial reports by dividing its business into three separate segments: international smoke-free products, international combustible products, and U.S. business segments. Analyst Bonnie Herzog and her team at Goldman Sachs Group, Inc. slightly raised their earnings per share (EPS) expectations for Philip Morris International Inc., while maintaining a "buy" rating and a 12-month target price of $205. Herzog pointed out that the new reporting segmentation will help investors have a clearer insight into the potential sales and profit growth space of Philip Morris International Inc. as it transitions into a smoke-free business. This transparent business classification is seen as an important signal for unlocking valuation premiums and is expected to attract more institutional investors who prefer growth and ESG themes. The Goldman Sachs Group, Inc. team believes that Philip Morris International Inc. will continue to unleash growth momentum in the U.S. market, ultimately making the U.S. the company's largest and most profitable market. It is understood that this financial report change will officially take effect from the first quarter earnings report released this week, and Philip Morris International Inc. will adjust its earnings data since 2023 to ensure comparability. In addition, Philip Morris International Inc. has included some foreign exchange (FX) and equity compensation costs under the new "corporate expenses and other" category, making minor changes to the profit margin performance of each business segment, but not affecting the overall revenue scale. Herzog stated, "Given the combined impact of IQOS and the opportunities brought by ZYN, we expect the company's revenue and profits to continue to grow strongly over the next few years. In short, few essential consumer goods companies are able to achieve (and expect) mid- to high-single-digit dollar revenue growth, accompanied by remarkable earnings growth." She added, "Ultimately, Philip Morris International Inc. is evolving into a company with faster growth and stronger profitability a highly attractive profit compounder." However, ahead of the financial report disclosure, internal expectations for Philip Morris International Inc. on Wall Street were not unanimous, adding suspense to Wednesday's stock price trends. While Goldman Sachs Group, Inc. and Barclays PLC Sponsored ADR staunchly maintained their $205 aggressive target price around April 17, Morgan Stanley and UBS Group AG took a more cautious approach, lowering their target prices to $190 and $168, respectively. These cautious views mainly stem from concerns that continued strength in the U.S. dollar may erode overseas income conversion and reservations about potential supply constraints as ZYN, an oral nicotine pouch brand in the U.S., expands. This tug-of-war among institutions makes detailed data on cost control and regional profit margins in the first quarter report key evidence to validate Goldman Sachs Group, Inc.'s "profit compounder" logic. Currently, market consensus expectations show that Philip Morris International Inc.'s first quarter net revenue is expected to reach approximately $9.95 billion, with earnings per share (EPS) estimated at $1.83. As the "crown jewel" of the company's growth, the performance in the U.S. market is the focus of this quarter. Goldman Sachs Group, Inc. particularly noted that the shipment volume of the ZYN oral nicotine pouch brand in the U.S. is expected to experience a significant growth of about 19%, reaching a quarterly shipment volume of 194 million cans. Although the product had faced challenges with a tight supply chain before, market expectations are widespread that management will confirm the easing of supply bottlenecks in the earnings conference call, which directly relates to the company's ability to maintain its dominant position in the rapidly growing nicotine pouch market. Meanwhile, the expansion of the smoke-free product IQOS in the international market remains another major support for the stock price. Market forecasts indicate that shipments of heat-not-burn units in this quarter will reach approximately 32.7 billion, a year-on-year increase of over 5%. Although traditional cigarette business may see a slight decline in shipments of about 1.5% to 2% due to changes in consumption habits, the company is expected to offset the impact of declining sales through its strong pricing power, thus maintaining a robust cash flow. Goldman Sachs Group, Inc. believes that as long as the growth rate of the smoke-free business can cover the natural decline of the traditional business, Philip Morris International Inc., as a "pioneer of transformation," will maintain a solid premium space. Looking ahead to the full year, whether Philip Morris International Inc. can receive an upward revision or confirmation of its profit growth guidance of 11.1% to 13.1% set earlier will be the indicator determining the stock price trend on Wednesday. In addition to business data, analysts will closely monitor the impact of fluctuations in the U.S. dollar exchange rate on overseas income conversion, as well as the latest compliance progress of IQOS entering the U.S. market. If the first quarter data can confirm the accelerated penetration of the smoke-free business, not only will it validate the reasonableness of the $205 target price set by Goldman Sachs Group, Inc., it will further strengthen the company's leading position in the tobacco industry's transformation towards harm reduction.