Philip Morris Downgraded by Bank of America Merrill Lynch
GuruFocus.com
- By Alberto Abaterusso
On Jan. 4, Bank of America Merrill Lynch downgraded Philip Morris International Inc. (PM) from Buy to Neutral, and the average target price set by analysts is now $100.69.
Source: Yahoo Finance
The analysts' new average target price ranges between a low of $88.00 and a high of $110.00 and it represents a 10% upside from the current share price of $91.54.
As of today, analysts suggest to buy Philip Morris International with a rating of 2.3. The recommendation rating ranges between 1.0 (Strong Buy) and 5.0 (Sell).
Source: Yahoo Finance
On Jan. 6, Philip Morris International closed at $91.84 per share, up 71 cents (or 0.78%) from the previous trading day, with 3,826,077 shares traded on the NYSE, versus an average volume of 4.14 million shares traded on the NYSE over the last 10 trading days and an average volume of 5.02 million shares traded on the stock market over the last three months.
The company has a market capitalization of $142.48 billion and the enterprise value is $165.48 billion. Philip Morris International is trading at 15.16 times the Ebitda.
Over the last 12 trailing months, revenue and diluted EPS were $26.11 billion and $4.18.
For the current year, analysts estimate an EPS of $4.05 on average, ranging between a low of $4.46 and a high of $4.56. The current average estimate on EPS represents a 1.8% increase from EPS generated by the tobacco producer in FY 2015. For FY 2017, analysts forecast an EPS of $4.79 on average.
Source: Yahoo Finance
Concerning revenue for the current year, analysts expect a 1.20% decline in Philip Morris International's revenue from FY 2015 and a 3.30% growth in 2017 from 2016.
Source: Yahoo Finance
The stock is less volatile than the market with a beta of 0.89. The PE ratio (TTM) and EPS (TTM) are 21.97 and $4.18.
Over the last four quarters, the company has increased the EPS from 81 cents in Q4 2015 to $1.25 in Q3 2016.
Source: Yahoo Finance
In the third quarter of 2016, the business was more profitable than expected by the tobacco manufacturer: The company reported net revenue of approximately $7 billion, a 3.6% increase on year over year basis. This figure doesn't include excise taxes and doesn't take into account negative movements in the currencies. The company attributed a more cost-effective business in the third quarter to "favorable pricing variance of $440 million from across all Regions, mainly Russia and Turkey", which "was partly offset by unfavorable volume/mix of $189 million across all Regions, mainly Algeria and Russia." (Q3 2016 Report).
Due to the positive factor, the operating income increased by 4.3% on a year over year basis. In the third quarter of 2016, the operating income was $3.067 billion; however, the figure doesn't take into account negative movements in the currencies.
The company says that "unfavorable volume/mix of $209 million, primarily in EEMA, mainly North Africa and Russia; and higher costs, mainly in support of PMI's Reduced-Risk Products" were not enough to completely neutralize the positive effect from "favorable pricing variance driven by all Regions." (Q3 2016 Report).
In the third quarter of 2016, Philip Morris International shipped a lower volume of cigarettes than the same period of the year before. The company shipped approximately 207.1 billion units of cigarettes, which represents a 5.4% decline year over year. Marlboro is the leading brand of cigarettes with approximately 73.34 million units shipped in the third quarter of 2016, down 1.1% on a year over year basis, which represents approximately 35.4% of the total shipment volume.
The company has a well-diversified portfolio of cigarette brands, with Marlboro being the leader and the most sold brand of cigarettes all over the world. In the most recent quarter, Philip Morris reported a decline in volumes; however, it was not enough to influence revenues, income from operations and adjusted diluted earnings.
Philip Morris International is a faithful issuer of dividends and distributes a total of $4.16 per share every year for a dividend yield of 4.56%. The dividend is paid by the company through quarterly payments according to a pay-out ratio that is currently 98.09%. The quarterly dividend was increased by 2% in the most recent quarter.
The company had $4.88 billion in cash on hand as of the most recent quarter. The total amount of debt was $30.09 billion. Over the last 12 trailing months, the company generated approximately $7.8 billion from operations.
Philip Morris International has 1.55 billion shares outstanding. Insiders of the tobacco giant hold approximately 0.22% of the company's total number of shares outstanding and institutions hold approximately 70.20%.
During the third quarter of 2016, Tweedy Browne (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Charles Brandes (Trades, Portfolio), and Ken Fisher (Trades, Portfolio) reduced their positions by 5.79%, 3.30%, 5.61% and 0.12%. Ruane Cunniff (Trades, Portfolio) sold out. John Rogers (Trades, Portfolio) and NWQ Managers (Trades, Portfolio) increased their positions by 29.93% and 8.11%.
George Soros (Trades, Portfolio) opened a position in Philip Morris International and the Hungarian guru bought 11,305 shares of the tobacco company at an average price of $100.17 per share.
With the U.S. dollar strengthening towards the euro and the renminbi during the fourth quarter of 2016, the odds of unfavourable exchange rates are higher than the third quarter. This may negatively impact the net revenues of the EU and Asia geographic segments, which both represent approximately 30% of the company's total net revenues excluding excise taxes.
Source: Philip Morris International, Inc.'s Q3 2016 Report.
U.S. dollar - euro exchange rate from July 2016 to December 2016:
Source: oanda.com
U.S. dollar - renminbi exchange rate from July 2016 to December 2016:
Source: oanda.com
In the near future, the European cigarette segment of the company will improve as the prevalence of illicit trade lessens thanks to the anti-counterfeiting and anti-smuggling system that it is set to start by May 2019 in the EU.
Disclosure: I have no positions in Philip Morris International Inc.
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