J.P. Morgan analyst Jared Dinges cuts rating to neutral, lowers stock price target by 15%
Shares of Philip Morris International Inc. took a hit Monday, after J.P. Morgan analyst Jared Dinges recommended investors stop buying, given risks from the cigarette seller’s exposure to Russia and Ukraine.
The Marlboro-brand parent’s stock PM, -6.61% slumped 6.0% in morning trading toward the lowest close of 2022. It has tumbled 13.6% since Russia’s invasion of Ukraine was launched on Feb. 24, and has slid 16.2% since closing at a more than four-year high of $111.90 on Feb. 17.
In comparison, the SPDR Consumer Staples Select Sector exchange-traded fund XLP, -1.82%, of which Philip Morris is a components, has gained 0.7% since the invasion began.
J.P. Morgan’s Dinges downgraded the stock to neutral from overweight and lowered his price target to $110 from $130.
He said Russia and Ukraine account for about 23% of Philip Morris’ (PMI) heated tobacco unit (HTU) sales and the continued growth in that category is “instrumental” for the company to reach its NGP (next-generation product) growth targets. Given that the outlook for Russia’s economic growth has been reduced since the invasion and subsequent financial sanctions were imposed, and since the company’s Ukraine operations have been suspended, Dinges no longer expects HTU guidance for 2022 to be achieved.
“NGP momentum is a fundamental pillar in the PMI equity story; with visibility on PMI’s NGP outlook quickly deteriorating (and unlikely to improve near term) and downside risks growing, we downgrade to neutral,” Dinges wrote in a note to clients.
In PMI’s 10-K annual report filing with the Securities and Exchange Commission, the company disclosed that shipments of cigarettes to Russia in 2021 fell to 52.5 billion units from 55.6 billion units in 2021, and the percentage of total cigarette shipments fell to 8.4% from 8.8%.
For HTUs, Russia shipments rose to 16.3 billion units from 13.6 billion units, while percentage of total HTU shipments slipped to 17.2% from 17.9%.
Meanwhile, PMI’s HTU market share in Russia improved to 7.4% from 6.3%, while the company’s overall HTU market share increased to 3.5% from 3.0%.
J.P. Morgan’s Dinges is a minority on Wall Street, as 11 analysts, or 61% of the 18 analysts surveyed by FactSet have the equivalent of buy ratings on PMI’s stock, and rest have the equivalent of neutral ratings. The average price target is $114.27, which is 3.9% above Dinges’ price target.
Despite the recent weakness, Philip Morris shares have gained 3.8% over the past three months and advanced 8.9% over the past 12 months, while the S&P 500 index SPX, -2.95% has dropped 8.9% the past three months and rallied 11.1% over the past year.