Philip Morris (PM) Had a Standout Q1 and the Smoke-Free Bet Is Paying Off

Philip Morris (PM) still offers meaningful upside following a standout Q1, as its smoke-free strategy continues to strengthen the growth story. The latest quarter reinforced that this is no longer a tobacco business in decline, with smoke-free products driving growth without undermining the legacy cash engine. Today, the company combines the resilience and cash flow of a traditional consumer staple with a business mix that is becoming more defensible and profitable.

With IQOS and ZYN continuing to reshape the narrative and the cigarette business delivering strong profits, I remain bullish on PM stock.

Q1 Results: Strength across the Board

What impressed me in Philip Morris’ Q1 results was that the company demonstrated strength across the board. The company brought in over $10.1 billion in revenue, up 9% from a year ago, which came in ahead of even many bullish expectations. IQOS devices, which matter because they bring users into the ecosystem, were also great. However, most of the growth is now being driven by recurring purchases such as HEETS, TEREA, and ZYN.

That explains how the company is able to achieve economies of scale and why adjusted diluted earnings per share (EPS) rose 16% to $1.96, well above the $1.86 consensus estimate.

In the meantime, bears were caught off guard because the traditional combustible business, which the market has been pricing toward a slow perpetual death, held up. Even with management focused on its Beyond Nicotine strategy, cigarettes were far from a drag on results. Combustibles revenue posted about 1% organic growth or 6.7% growth when including foreign exchange (FX) tailwinds. This was because strong pricing more than offset the expected decline in volumes.

So while the industry continues to move toward heat-not-burn products, Marlboro’s core customer base remains highly loyal. It continues to generate substantial cash flow for PM. That cash is helping fund the company’s next generation of smoke-free products, which is a big part of why the investment case still looks compelling. The company has a growing, reduced-risk business supported by a very durable legacy franchise.

Management’s Vision for a Nicotine Evolution

During the April 22 earnings call, CEO Jacek Olczak spoke with confidence, which makes sense considering the strategy is working. He noted that PM has already achieved its three-year operating income and EPS growth targets in just two years, which is a remarkable result for a company of this scale. The industry is changing, but the market still tends to view tobacco companies as if they are stuck in structural decline.

Olczak pushed back on that idea, arguing that the growth is not just about taking share from competitors, but also about the category itself expanding. With IQOS now present in 106 markets and ZYN reaching global scale, the addressable market for reduced-risk products appears to be growing faster than many investors had expected.

Looking ahead, the path to further growth is pretty clear. The U.S. launch of IQOS ILUMA is the biggest opportunity, and it still has not fully flowed through the income statement. ZYN is another major driver, with oral nicotine growing at a rate that feels more like a high-growth category than a traditional staples business, especially given PM’s 66% value share in the U.S.

Tobacco is gradually being redefined around alternative nicotine products, and PM is in the strongest position to benefit because no one else matches its scale or its investment in research and development.

Is PM Now Fairly Valued?

Now let’s talk valuation, because I know some of you are looking at the stock and wondering whether the easy money has already been made. PM is currently trading at about 19.5x the 2026 consensus EPS estimate of $8.41. That is clearly a premium, well above the low-to-mid-teens multiple the stock traded at before the big re-rating from late 2024 into early 2025. Yet those earlier levels always looked too cheap for a business with this kind of profile. The market has finally started to recognize that PM offers a rare combination of growth and defensiveness.

Today’s multiple makes sense in the current setup. Nicotine demand tends to hold up well even in weaker economic environments, and PM is showing that it can still grow despite inflation and tariff concerns. Its customers are generally not very price-sensitive, which helps shield the business from the kinds of macro pressures that hit other consumer companies much harder. When you pair that defensive profile with double-digit growth in oral nicotine and heated tobacco, a 19.5x multiple does not look especially stretched.

I think PM looks reasonably valued here because the upside is no longer just about the stock trading at a higher multiple. At this point, a lot of it comes down to how quickly EPS is growing. As PM continues to deliver within its $8.36 to $8.51 guidance range and maintains low-double-digit EPS growth, the stock is set to remain a long-term compounder.

If you are waiting for the stock to fall back to 15x earnings, you may be waiting a long time, as the business continues to grow and shareholders continue to collect dividends and price appreciation.

Is PM Stock a Buy, Sell, or Hold?

Despite trading flat for a year, Philip Morris stock maintains a Strong Buy consensus rating on Wall Street, based on eight Buy and two Hold ratings. Notably, no analyst rates the stock a Sell. Further, PM’s average price target of $195.80 implies about 15.73% upside over the next 12 months.

Final Thoughts

Yesterday’s report was a strong reminder that Philip Morris is no longer just a legacy tobacco name. It is increasingly looking like a durable growth business. With EPS expected to grow in the double digits again this year and a model that has remained resilient even in a choppy macro backdrop, 19.5x earnings still looks like a fair entry point for an asset of this quality. I’m staying long.