Tags: Philip | portfolio | PM

Philip Morris Fires Up Investor Portfolios

By    |   Monday, 05 March 2012 08:17 AM

Philip Morris International (PM), the U.S. tobacco holding company that makes and sells cigarettes and other tobacco products outside of the United States, seems to have completed a checklist that fires up investor portfolios.

The company is reporting revenue and earnings that exceed expectations. It has stockpiles of cash and a quiver of brands readily identifiable around the world, including the Marlboro, Virginia Slims, Parliament and Merit brands of cigarettes. The company regularly pays dividends and manages its finances well.

Total revenue in the fourth quarter of 2011 hit $7.7 billion, up 9 percent on year. Fourth-quarter adjusted diluted earnings per share of $1.10 were up 13.4 percent on year and better than expected.

For all of 2011, revenue hit $31.1 billion, up 9.2 percent on year.

The company's Japanese business did exceptionally well. "While admittedly lifted by Japan, our 2011 results were simply superb in each and every aspect. Every single one of our top ten brands recorded volume growth, we surpassed all of our key financial performance measures and grew our global market share for the fourth year in a row," Chairman and CEO Louis C. Camilleri says in an earnings statement.

"Our total shareholder return in 2011 was an impressive 39.8 percent, substantially outperforming the broader market indices," Camilleri says. "Economic uncertainty, currency volatility and the year-on-year comparison of our business performance in Japan are obvious challenges in 2012," Camilleri adds.

Smoking knockoffs

While cheaper brands may conceivably threaten the iconic tobacco company's products, don't bet on them snuffing out Philip Morris International, Moody's analysts point out.

Furthermore, the company may be known for its more expensive brands but does offer a wide variety of products. It's poised to withstand economic uncertainty and unfavorable exchange rates in certain markets as well.

"Despite the reliance of PMI's top line on its premium brands, of which Marlboro is undoubtedly the most important, Moody's assessment also includes the company's diversified portfolio of brands in the premium and mid-price segments," Moody's analysts write in a January review of the company after assigning the company with A2 ratings, towards the higher end of investment grade.

"PMI's brand recognition affords the company superior pricing flexibility, which in Moody's view should help it withstand the potential slowdown in up-trading in most emerging markets and the potential acceleration in down-trading in more mature markets."

Philip Morris International's stock price has already gained more than 30 percent in a year, yet Wall Street research analysts see more gains coming. Company executives also have said it will buy back stocks, which make it even more attractive.

In February, Stifel Nicolaus reiterated a buy recommendation while Barclays Capital reiterated an overweight recommendation on the company's stock. 

The company next reports on May 10.

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