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Philip Morris International (PM) shares closed higher on Aug. 24 after announcing a contract manufacturing agreement with Altria Group (MO). Under the arrangement, PM's non-U.S. affiliates will work with Philip Morris USA on combustible-cigarette manufacturing, with initial shipments expected to begin in early 2027.

Following today's rally, Philip Morris stock is up nearly 25% versus its year-to-date low. 

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The strategic arrangement with Altria is largely constructive for PM shares. Why? Because tapping into MO's existing U.S. production capabilities to serve the international market will enable Philip Morris to streamline the combustible cigarette supply chain and optimize capital efficiency.

Philip Morris, however, has no intention of commercializing combustible cigarettes domestically in the U.S., and therefore expects negligible impact on its 2026 financials, keeping its long-term direction intact.

All in all, investors view the alliance as a net positive since it positions PM to drive high margins in traditional tobacco while leaning into operational efficiencies that free up cash flow.

A lucrative 3.09% dividend yield makes Philip Morris even more attractive as a long-term holding. 

Philip Morris shares are worth owning also because of the company's rapidly expanding smoke-free business. 

In its latest reported quarter, PM saw that segment grow an exciting 11.7% year-on-year as IQOS continued to drive international growth. Smoke-free products made up roughly 42% of the firm's total net revenue in Q2.   

Even from a technical perspective, Philip Morris International currently sits handily above its key moving averages (MAs), with an RSI in the early 50s indicating significant buying pressure. 

Crucially, PM is currently trading at a price-to-sales (P/S) ratio of 3.18x, which makes it relatively inexpensive to own than both Altria Group and British American Tobacco. 

It's also worth mentioning that Wall Street analysts remain largely positive on Philip Morris International for the next 12 months. 

According to Barchart, the consensus rating on PM stock sits at "Moderate Buy," with price targets as high as $225 indicating potential upside of roughly 18% from here. 

On the date of publication, Wajeeh Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com