UBS upgrades Philip Morris on margin improvement at Zyn and IQOS

Investing.com -- UBS upgraded Philip Morris International (NYSE:PM) to Neutral from Sell on a stronger-than-expected first-quarter results and margin improvements in its smoke-free products that supports further upside to full-year 2025 earnings.

The firm raised its earnings per share estimates by 3% and lifted its price target to $170 from $130, reflecting a higher valuation multiple of 19 times estimated 2026 earnings.

UBS said the new multiple better reflects Philip Morris’s high single digit EPS growth outlook and resilient performance in a volatile macroeconomic backdrop.

“Given PMI’s strong and resilient operating performance in the current uncertain macro environment, we no longer believe it sufficient to retain a Sell rating,” UBS wrote.

Philip Morris reported first-quarter earnings per share that were 6% ahead of analyst expectations and raised the midpoint of its full-year 2025 EPS guidance by 4.5%, largely due to currency tailwinds.

UBS now expects constant-currency EPS growth of 14.5% this year, compared to company guidance of 10.5%-12.5%.

While growth in IQOS, the company’s flagship heated tobacco product, slowed to single digits in the first quarter, UBS said this was more than offset by strong momentum in nicotine pouch brand ZYN, favorable cigarette trends, and sharply higher smoke-free margins.

Gross margins in that segment are projected to rise more than four percentage points to nearly 71%, helped by U.S. ZYN sales and scale benefits in IQOS.

ZYN is expected to deliver 851 million cans in volume and $2.8 billion in revenue this year, with stronger inventory restocking adding to the upside.

Despite the upgrade, UBS sees growth normalizing in 2026, with EPS expected to rise 9.3% as volume trends soften.