Should You Buy, Sell, Or Hold Philip Morris Stock Around $100?

PM: Philip Morris logo
Philip Morris

Despite a 3% rise year-to-date, we believe Philip Morris stock (NYSE: PM) has some more room for growth. PM stock rose marginally from around $96 in early January to $98 now. But this YTD 3% rise for PM is far better than -13% returns for the broader S&P500 index.

Looking at the longer term, PM stock is down 8% from levels seen in late 2017. This marks an outperformance compared to its peer Altria stock, which plunged 37% over this period. However, broader markets have performed far better, with the S&P 500 index rising 57% over the same period.

This 8% fall for PM stock since late 2017 can primarily be attributed to 1. the company’s P/S ratio falling 22% to 4.5x trailing revenues, from 5.7x in 2017, which offset  2. Philip Morris’ revenue growth of 18% to $34 billion over the last twelve months, compared to $29 billion in 2017, and 3. a <1% fall in its total shares outstanding to 1.6 billion currently. This means the company’s revenue per share rose 18% to $21.85 now, compared to $18.48 in 2017.

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Philip Morris sells its tobacco products in non-U.S. markets. Revenue is generated from the sale of cigarettes and its flagship smokeless tobacco offering – IQOS. Due to supply disruptions, the company’s revenue growth was impacted during the pandemic. More recently, the company has scaled down its Russian operations, owing to the complexity arising from the geopolitical crisis. Russia is a big market for tobacco products, and the company’s plans to fully exit this market will impact its financials in the near term. For perspective, the Eastern European market, which includes Russia and Ukraine, accounted for 11% of the company’s total sales in 2021. However, the company is finding it challenging to exit the Russian market, and the timeline could be sometime in 2023. [1]

There are some positives for Philip Morris to look forward to. It reported a 3% growth in net revenues in H1 2022, driven by a significant 42% rise in the Middle East & Africa sales. The company saw an uptick in IQOS sales and profited from higher cigarette prices. The company also is in the process to acquire Swedish Match AB in a $16 billion deal, which will strengthen Philip Morris’s position in smokeless products.

While the company has good prospects, it faces headwinds from the current supply chain disruptions, higher inflation, and rising oil prices resulting in lower consumer disposable income. These factors may impact Philip Morris’ performance in the near term. That said, we believe that there is some more room for growth in PM stock. We estimate Philip Morris’ valuation to be $111 per share, reflecting a 13% upside from its current market price of $98. Although PM stock is trading at 4.8x trailing revenues at its current levels, compared to the last three-year average of 4.6x, we assign a higher multiple for PM given the growth in its IQOS products. Additionally, if successfully closed, the Swedish Match deal will further improve the prospects of its smokeless tobacco offerings.

While PM stock looks like it has some more room for growth, it is helpful to see how Philip Morris’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Philip Morris vs. Entergy.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Aug 2022
MTD [1]
YTD [1]
Total [2]
 PM Return 1% 3% 7%
 S&P 500 Return 2% -12% 88%
 Trefis Multi-Strategy Portfolio 2% -12% 253%

[1] Month-to-date and year-to-date as of 8/26/2022
[2] Cumulative total returns since the end of 2016

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  1. Companies Find Leaving Russia Difficult, Though Many Are Trying, Jennifer Maloney and Thomas Gryta, The Wall Street Journal, June 21, 2022 []