Philip Morris International Inc. (PM)

Equity
US
Consumer Defensive

RISK

RETURN

Key risk factors

Negligible price volatility

Strong trading liquidity

Strong & resilient to price shocks

Key return factors

Excellent dividends

Somewhat favourable analyst view

Good margins and returns

Company profilePhilip Morris International Inc. operates as a tobacco company working to delivers a smoke-free future and evolving portfolio for the long-term to include products outside of the tobacco and nicotine sector. The company's product portfolio primarily consists of cigarettes and smoke-free products, including heat-not-burn, vapor, and oral nicotine products that are sold in markets outside the United States. The company offers its smoke-free products under the HEETS, HEETS Creations, HEETS Dimensions, HEETS Marlboro, HEETS FROM MARLBORO, Marlboro Dimensions, Marlboro HeatSticks, Parliament HeatSticks, and TEREA brands, as well as the KT&G-licensed brands, Fiit, and Miix. It also sells its products under the Marlboro, Parliament, Bond Street, Chesterfield, L&M, Lark, and Philip Morris brands. In addition, the company owns various cigarette brands, such as Dji Sam Soe, Sampoerna A, and Sampoerna U in Indonesia; and Fortune and Jackpot in the Philippines. The company sells its smoke-free products in 71 markets. Philip Morris International Inc. was incorporated in 1987 and is headquartered in New York, New York.

Valuation: Fairly valued

Multiple

TTM

NTM

P/E

19.50

16.40

PEG

4.40

P/B

-15.00

172.70

P/S

4.30

4.20

P/FCF

17.30

12.20

EV/EBITDA

14.60

13.90

Considering past and projected metrics, the stock is neither 'expensive' nor 'cheap' compared to its peers. Specifically, the stock is fairly valued on P/E, neutral on EV/EBITDA, and reasonably priced on P/FCF.

Performance: Mixed

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 6ppts over past six months and grown 0ppts slower in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

Analyst view: Somewhat favourable

The average target price is 105 and suggests 5% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 134.0. This translates into 34% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 86.0. This is equivalent to 14% downside potential in the worst case.

Profitability: Good

RoE

Philip Morris International Inc. reported a return on equity (RoE) of -73.8% in the last 12 months, up from -77.2% in FY23. The market consensus projects an RoE of -85.9% in FY24, again behind its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 12.2% in the last 12 months, a decrease from 12.3% in FY23. The market analysts predict that RoA will be 11.2% in FY24, again stronger than its peers.

RoCE

In the last 12 months, the return on capital employed (RoCE) declined to 19.4%, above the peers. The consensus estimate for FY24 for RoCE is 29.7%, again ahead of the peers.

Net margin

EBITDA margin

Historically, PM has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 22.1%, down from 22.1% in FY23. The company has reported strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 38.3% in the last 12 months, up from 35.3% in FY23.

RoIC / WACC = 5.4(excellent value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 5.4 in the past several years. This ratio implies a excellent shareholder value creation.

Growth: Average

Revenue

EBITDA

EPS

Free cash flow

PM reported revenue of USD 35 919mn in the last 12 months, up 2% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 2% from FY23 to USD 5.12. Market expects EPS to reach USD 6.3 in FY24.Revenue growth has been constrained in the past several years (negative-to-neutral), while EBITDA has grown slowly in recent years. Net income has fallen in recent years (negative). The FCF trend is falling, a notch worse than EBITDA. On the positive side, revenue, EBITDA and EPS dynamics is very stable.

Dividends: Excellent

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been outstanding and can be rated excellent compared to its peers. At the same time, the average five-year yield has been significantly higher and exceeded most of its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.

Default risk: Considerable

The risk of default is high. Among the negative credit factors, we point to slow historical revenue growth, negligible return on capital, excessive margin volatility, poor working capital management, and an unfavourable capital structure. We note robust profitability and adequate interest coverage, among the positive credit factors.

Volatility: Negligible

In normal market circumstances, PM is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible.

Stress-test: Negligible

In highly turbulent market conditions, PM is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low.

Selling difficulty: Very low

PM boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains mildly favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.