Robust Underlying IQOS Growth With Catalysts Ahead; Raise PT to $215

Research evidence excerpt

Robust Underlying IQOS Growth With Catalysts Ahead; Raise PT to $215

IQOS ILUMA. PM has Unless otherwise noted, all metrics are based on Morgan Stanley ModelWare

one of the highest mid-term growth profiles in the large-cap CPG space (6-8% OSG framework** = Based on consensus methodology

vs peers in the 2-5% range) but is trading at a ~35% discount to theoretical fair value §e == MorganConsensusStanleydataResearchis providedestimatesby Refinitiv Estimates

based upon a regression of LT OSG vs 2027 P/E. We expect PM's discount to narrow Quarterly EPS ($)

as its smoke-free portfolio, which accounted for 42% of net revenue in 2Q, increases 2026e 2026e 2027e 2027e

Quarter 2025 Prior Current Prior Current

to 55-60% over the next 5 years. Post 2Q, we are trimming FY26 EPS by ~1% due to Q1 1.69 - 1.96a 2.20 2.14

FX, but are raising our PT to $215 from $200 to reflect increased confidence in PM's Q2 1.91 - 2.20a 2.27 2.46

Q3 2.24 2.46 2.23 2.62 2.53

mid-term growth rate. Q4 1.70 1.89 1.91 2.09 2.02

e = Morgan Stanley Research estimates, a = Actual Company reported data

Solid 2Q Beat: PM reported 2Q Adjusted EPS of $2.20 vs the $2.04 Virtua

consensus, with a +5.6% revenue and +8.9% OI beat. While results benefited from

better-than-expected Combustibles volumes and phasing of SG&A, IQOS in-market

sales (IMS), volumes grew +5.1% on a reported basis and +10% ex Japan and Poland

(which were impacted by the excise-driven price increase and flavor ban,

respectively), a slight acceleration from +9.4% growth in 1Q. OSG of +7.6% was well

ahead of the +5.0% consensus, with International Smoke Free (primarily IQOS)

+11.8%, slightly below the +12.5% consensus, International Combustibles +6.4%,

ahead of the +2.6% consensus, and the US -0.8%, well ahead of the -9.3%

consensus.