Philip Morris: Balanced Risk with Smoke-Free Transition

We initiate with a Hold rating and $170 target. PM is a global tobacco powerhouse with an iconic

portfolio of cigarette brands & an accelerating smoke-free revenue pivot. Underneath an industry mature veneer, the company is rebuilding a growth profile & quietly leveraging world-class distribution to scale ZYN & IQOS way beyond street expectations. Our confidence is rooted in mgmt's relentless execution - ZYN shipment guides point to high-margin tailwinds, capacity expansions are on-track & cost focus sharpens op lev as smoke-free GM stock rides past +70%. In other words, it's a retrade-away transition that ST estimates underestimate: our above-cons FY26E $8.50 (+11.8%) assumes conviction in core mix improvement and seamless pass-through of $2bn of targeted cost savings over the next two years. But 36x frothy forward multiple already prices the company above peer set & insider selling is flagging caution: we expect multiple compression as regulatory correlations & macro crosswinds play out. Our 20.0x FY26E P/E multiple embeds a premium for the smoke-free franchise's secular upside but importantly, it's a valuation exercise that admits risk that today’s headline growth rates ultimately normalize. Regulatory overhangs aren't red herrings — a sharp U.S. nicotine pivot (or European excise one) could cap upside faster than bullish models extrapolate. At current levels, the risk/reward is finely balanced; operational momentum is impressive but valuation discipline should take the driver's seat.

## Supply Chain Choke Points
We see PMI at a structural cost inflection as disciplined execution and the underlying economics of