UBS analysts downgraded shares of Philip Morris International (NYSE:PM) to Sell with an $86.50 price target in a note covering global tobacco stocks on Tuesday.
Analysts told investors that they are expecting a slowdown at IQOS, which they believe will drive a de-rating.
In the sector overall, the bank said its detailed analysis suggests the growth of next-generation products (NGP), which represents around 20% of industry revenues, is likely to slow over the next five years, largely due to heated tobacco.
"We expect companies will fall short of their medium-term NGP targets, which is a key driver of valuation," said analysts. PM is one of their least favored stocks in the sector.
"Our analysis, in combination with UBS Empirical Scientific Approaches, suggests PMI could fall short of its 180-200bn heated tobacco volume target in 2026E," they added. "Whilst strong growth in nicotine pouches will allow PMI to deliver +8% and +10% organic sales and EPS growth to 2026E (EPS -3% vs cons.), we believe PMI's valuation premium rests on IQOS and the slowdown will result in a de-rating."