Case 1:20-cv-00393-LMB-WEF Document 1468-3 Filed 04/05/23 Page 1 of 3 PageID# 40778
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`Exhibit 11
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`Case 1:20-cv-00393-LMB-WEF Document 1468-3 Filed 04/05/23 Page 2 of 3 PageID# 40779
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`rns Intern
`PM — NYSE
`Buy
`Tobacco
`
`Company Update
`
`Increasing the Size of the Prize
`
`Philip Morris International held its biennial two-day investor meeting in Lausanne, Switzerland late last week and
`outlined a narrower EPS guidance range for 2016, reiterated its medium-term guidance, and outlined a robust
`growth outlook due to its reduced risk product (RRPs) innovation. The company indicated that it would reconsider its
`long-term growth algorithm in 2018 once its RRPs have been established for a longer period of time.
`
`Previous.:::."' Current.:
`Buy
`110.00
`
`Changes
`
`Rating
`:1-aeoetPtibe::
`P.f.:16EEM(Net),
`FYITE EPS (Net) $5 11
`: FIK:f6:E:ReV(iiet
`$20:88B:
`FY17E Rev (net)
`$28 89B
`
`Price (10/03/16):
`52-Week Range:
`Market Cap.(mm):
`Shr.O/S-Diluted (mm):
`Enterprise Val. (mm):
`Avg Daily Vol (3 Mo):
`LT Debt/Total Cap.:
`Dividend($ / %)
`S&P Index
`
`S26.4313::
`S28 32B
`
`$97.42
`$104 —$80
`151,098
`1,551.0
`$178,847.7
`4,201,014
`1 18.8%
`$4.16 / 4.3%
`2,161.20
`
`EPS (Net)
`
`2015A
`
`2016E
`
`2017E
`
`Q1
`
`Q2
`Q3
`
`Q4
`
`$1.16
`
`$0.98A
`
`$1.16
`
`1.21
`
`1.24
`
`0.81
`
`1.27
`
`1.37
`
`1.37
`
`$5.17
`
`1.15A
`
`1.22
`
`1.21
`
`$4.56
`
`21.4x
`
`FY Dec
`
`$4.42A
`
`Rev (net)
`
`2015A 2016E 2017E
`
`FY Dec
`EV/Revenue
`
`$26.79B $26.43B $28.32B
`
`6 7x
`
`68x
`
`• The company narrowed its EPS growth range that centered on our 11%
`growth estimate while reducing the size of the FX drag to $0.35 for the
`year, down from $0.40 previously. As such, we are raising our EPS estimate
`for FY16 to $4.56, up $0.05 to reflect the reduced FX burden. In addition, we are
`raising our FY17 EPS estimate to $5.17, up $0.06, and our FY18 EPS estimate
`to $5.79, up $0.11 due to a stronger contribution from RRPs (detailed in the note
`below).
`
`• The one negative from the meeting was the expected volume decline of
`3.9% for the year from a previous expectation of -3%. We are lowering our
`volume estimate to incorporate a 3.8% decline for the year. The low margin
`markets resulting in this weaker volume performance have a limited effect on
`profits. Pricing is expected to be up 6.0%-6.5% going forward — in line with our
`assumption.
`
`• The steady pricing and 4%-6% revenue growth supports 10% constant
`currency EPS growth for the base business supporting a top-tier growth
`profile for the business while investing heavily in its RRP innovation.
`
`• RRPs stole the show at the investor meeting, in our view, and were the
`backbone of nearly every presentation from its senior management team.
`Our estimates incorporate a roughly 2% contribution to volume and a 3%
`contribution to profit incrementally in each of the next two years — we believe this
`could prove conservative.
`
`• We believe the "size of the prize" is only increasing — 50b sticks in
`capacity by the end of FY17 and the ability to add another 40b sticks in
`FY18 suggests RRPs could total more than 10% of the company's volume
`in short order. In addition, the company outlined a robust innovation platform
`beyond the current generation — Platforms 2, 3 and 4 could all be incremental to
`our projections.
`
`• We continue with our Buy rating and $110 target price.
`
`Please see our detailed primer on PM here (PM PrIrri ).
`
`Christopher R. Growe
`
`growec@stifel.conn
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`W Andrew Carter, CFA
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`carterw@stifel.com
`
`Matthew E. Smith
`Stifel Equity Trading Desk
`
`smithmat@stifel.com
`
`(314) 342-8494
`
`(314) 342-8452
`
`(314) 342-2128
`(800) 424-8870
`
`Stlfel does and seeks to do business with companies covered in its research reports. As a result, investors should be
`aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should
`consider this report as only a single factor in making their investment decision.
`All relevant disclosures and certifications appear on pages 15 -17 of this report.
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`CONFIDENTIAL BUSINESS INFORMATION, SUBJECT TO PROTECTIVE ORDER
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`RJREDVA_001666344
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`Case 1:20-cv-00393-LMB-WEF Document 1468-3 Filed 04/05/23 Page 3 of 3 PageID# 40780
`Philip Morris International, Inc, (PM)
`October 4, 2016
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`Platform 4 is a next generation E-vapor product that is superior to the E-vapor products on the market today.
`While the make-up of the product is totally different from products currently on the market, most important, it delivers
`nicotine consistently with each puff which is very different from the inconsistent nature of the current E-vapor
`technology. In addition, this is the first product that could be produced in mass with automated technology rather than
`requiring some handling by workers which can make producing E-vapor products quite expensive especially given the
`lack of scale in the product line. We believe this would support a far stronger margin profile for the product than any
`existing technology on the market, including in the U.S. This product will be test marketed in the U.K. in the fourth
`quarter under the "Mesh" brand utilizing its Nicocigs brand umbrella in that market. This is purely a test and the
`company looks forward to utilizing the !earnings from this market to improve the product itself, the marketing, the
`message, etc. and relaunching the product in the future under the VEEV brand which it has identified as part of its
`overall branding strategy for these products.
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`MMPO: PM POri60110 Approach
`2014
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`2015
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`2016
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`2017
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`Platform 1 iQOS
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`Platform 2
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`Source Company reports
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`Advanced heat nat burn technology Requires a device
`The 'cigarette' you pate the end of this device is a very
`d ifferent sort of cigarette with a small amount of tobacco
`and 4 individual elements of the stick
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`Heat not burn product with ritual close to that of
`conventional cigarettes You light the end of the device
`We expect these lobe sold in packs of 20 similar to
`cigarettes Does not need a device
`
`This is Altna's current technology commercialized by
`Philip Morris International in markets around the world
`Supplemented with Nicoags (UK) business
`
`Philip Morns International, in conjunction with Atm, is
`working to improve upon the current generation of e-
`vapor products
`
`Vapor device that uses chemical process to create
`mcohne aerosol PM holds the patent bra chemical that
`allows quicker nicotine absorption that would be used in
`t his device This is like an E-ag, but does not require a
`pattery
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`Pilot Launches
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`National
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`Geographic Expansion
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`Fine! Development PheSe
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`Clinical Trials
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`City Test
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`Itria Agreement/Nicoci
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`Commercialization in Selected Geographielli
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`earch. Development & Tech
`' ria
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`ornmercialization
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`As for capacity, the company expects to achieve 7b sticks in capacity for its HEETS product this year sourced
`from its recently completed RRP manufacturing facility in Italy. That capacity should reach a run-rate of 15b sticks
`by year-end and then by the end of 1Q17 the company expects to be at that 30b annual stick run-rate. That figure
`should grow further to 50b sticks by the end of FY17. While the lack of capacity has been an immediate issue, we
`believe it will ease after 1Q17 when capacity reaches an inflection point sufficient to accommodate a full launch of
`these products in its 30-35 markets expected at that time.
`
`The company noted that it will achieve 50b sticks in capacity for its RRPs by the end of 2017 and that it could
`increase that capacity at a rate of 4b sticks per month in 2018 at a cost of $16-$18 million per lb sticks. So,
`each 4b sticks in incremental capacity would lead to a cost of roughly $70 million per month ($800-$900 million in
`incremental capex in a year for those counting). The company has a roughly 12-month timeline for producing these
`machines and therefore in early 2017 PM! will already be planning its volume needs for 2018 and 2019 — an especially
`difficult task given the strong uptake of the product and its nascent stage. To this end, the company will add $100
`million in incremental capex in 2016 (up to $1.2 billion) and then another $300 million in incremental capex in
`2017 to $1.5 billion to achieve this higher degree of capacity. The cost of increasing its capacity is relatively
`modest and we believe its strong free cash flow generation can comfortably support the near-term cost of the
`incremental capacity.
`
`Conversion rates by consumers in its initial launch markets have been encouraging — most markets are
`running in the 50%-65% range for full conversion and upwards of 75% for predominant conversion to iQOS.
`Japan's conversion rate is up to 65% for full conversion and 73% for full or predominant conversion. This rate of
`conversion with a roughly 30% cannibalization rate indicates not only the bevy of competitive smokers switching to this
`product but also a robust rate of conversion that is leading to such significant market share for the product in Japan.
`While the company is employing marketing where appropriate, the buzz of iQOS is really catching on in these countries
`and especially in Japan. To this point, 36% of users in Japan of iQOS have tried from the recommendation of a friend.
`And, the cost of converting a consumer in Japan has gone down exponentially — from an index level of 100 in 3Q15 to
`a level of 9 in 2Q. The company counts 861,000 converted users in Japan — a significant level of consumer interest.
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`CONFIDENTIAL BUSINESS INFORMATION, SUBJECT TO PROTECTIVE ORDER
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`Page 9
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`RJREDVA_001666352
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