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Citi Believes Tobacco Stock Undervalued Due to Neglect of Next-Gen Smoking Products

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Philip Morris Stock Upgraded to Buy by Citi Analyst

Citi analyst Simon Hales has upgraded Philip Morris stock from neutral to buy and raised its price target by $8 to $117. In a note to clients, Hales said investors may not be fully appreciating how much next-generation products (NGPs) can help the tobacco company. Although the stock has lost 6.2% this year, Hales' new target implies shares could gain 23.3% over the next year.

NGPs Contributing to Industry and PM's Performance

According to Hales, NGPs are contributing meaningfully to the industry, thereby helping Philip Morris' performance. He believes that investors are at risk of under-valuing this evolving segment. Hales stated that the company is at the forefront of transitioning away from combustibles, and sales of its heated tobacco products should grow at a five-year compound annual rate of about 18%. Such growth should significantly help margins.

The Market Hasn't Fully Priced in the Value of Future Growth and Cash Flow Opportunities

Hales added that the market hasn't fully priced in the value of the company's future growth and cash flow opportunities. He believes it is especially apparent given that the stock trades at a 26% discount to U.S. staples. Also, the analyst included a three-month positive catalyst watch on the stock. After a disappointing first quarter, he said the second-quarter trading momentum should accelerate, and delivery would likely come in at the upper end of the expected range set by management.

Transition Away from Combustibles

In transitioning away from combustibles, Hales said the company is on track to hit its target of having over half of Philip Morris' net revenue come from smoke-free products. These smoke-free product lines have helped stabilize nicotine after combustibles' fall from grace.

Philip Morris is working hard to stay relevant in the tobacco industry by transitioning away from combustibles. Its NGP products are contributing meaningfully to the industry, boosting Philip Morris' performance, and helping to stabilize nicotine after combustibles' decline in popularity. Investors seem to be overlooking the value of the company's future growth and cash flow opportunities; hence Citi's upgrade of the stock to buy.

The upgraded stock of Philip Morris by Citi analyst has remained a topic of discussion for many investors. It offers a varied range of opportunities for tobacco companies who are struggling to stay relevant in an ever-changing market. The transition to NGPs from combustibles could be the way to go for new businesses in the tobacco industry looking to stay relevant. By analyzing market trends and consumer behavior, companies can tap into the NGP market, make informed decisions, and drive growth in their niche. The NGP market is rapidly evolving, and companies should actively monitor and adapt to changing trends. Investors remain skeptical about the value of future growth and cash flow opportunities vis-à-vis NGPs. Hence, new businesses should study the market and reconfigure their business models to suit customer needs. In conclusion, the tobacco industry has the potential for growth and profits, but companies need to shift their focus to NGPs to remain relevant and tap into new customer bases.

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