Goldman Sachs Sees Philip Morris EPS Up 10% In 2017, Adds To Conviction Buy List

Goldman Sachs expects Philip Morris International Inc. (NYSE: PM) earnings to grow in double digits next year and sees 20 percent potential upside in shares as it upgraded the stock to Buy from Neutral.

The brokerage, which also added the stock to its Conviction Buy List, sees increased bottom-line contribution from Philip Morris' next generation products, in addition to improving forex environment and stable fundamental industry trends.

"(1) We believe PM's EPS growth is likely to accelerate to 10 percent in 2017 vs. +2 percent in 2016 and down 12 percent in 2015, as FX headwind fades; (2) We forecast 11-plus percent EPS growth from 2018–2020 as iQos heat-not burn (HNB) products contribute 5–6 percent of EPS by 2020," analyst Judy Hong wrote in a note.

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Further, Hong expects the company to raise dividend by around 8 percent in mid-September and projects the company to resume share repurchases by mid-2017.

Hong increased price target by $8 to $114, based on a 22X forward 12–24-month P/E (up from 21X), as the analyst sees "PM benefiting from fading FX headwinds as well as greater visibility around its Next Generation Product strategy."

Shares of Philip Morris closed Friday's regular trading session down 3.73 percent to $97.54. In pre-market trading Monday, the stock was up 1.75 percent at $99.25.

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