Some sin stocks often outperform the market during downturns, and one “sin stock” is doing just that. Philip Morris (NYSE:PM) has gained 38.82% year-to-date as the company is transforming from a traditional cigarette company to a leader in smoke-free alternatives.
In fact, it is up 69.8% in the past year and has continued gaining despite fears that tobacco companies are doomed in the long run. The rally here has handily outperformed the broader market, and analysts still see further upside potential in the coming years.
The company is focusing on smoke-free products, particularly IQOS heat-not-burn devices and ZYN nicotine pouches. This pivot has insulated the company from many of the challenges facing other stocks. It has even managed to insulate itself from the ongoing U.S.-China tariff war. You can thank the localized production for that.
PM's smoke-free business now accounts for 42% of total net revenues and 44% of total gross profit. In Q1 2025, this segment showed impressive growth with a 14.4% increase in shipment volumes, 15% growth in net revenues (20.4% organically), and a solid 27.7% increase in gross profit (33.1% organically). The FDA approved all ZYN products in the U.S. (currently marketed by Swedish Match) in January and accelerated the momentum even more.
The company’s Q1 2025 results exceeded expectations across the board, and the financials here imply more upside is ahead. This is a defensive company with solid growth potential. Diluted EPS grew 24.6% to $1.72, and revenue of $9.3 billion exceeded analyst expectations by $240 million. It has also raised its full-year EPS guidance to $7.36 to $7.49, which implies 12-14% growth.
The 3.21% dividend yield sweetens the deal for me, so I think it is worth buying despite the broader market downturn.
