Pricing Gains To Drive Philip Morris’ Q2?

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Philip Morris

Philip Morris (NYSE: PM) is scheduled to report its Q2 2023 results on Thursday, July 20. We expect PM stock to trade higher, with its revenue and earnings likely exceeding the street expectations. The company should continue to benefit from an uptick in heated tobacco units and better pricing. Furthermore, our forecast indicates that PM stock has some room for growth, as discussed below. Our interactive dashboard analysis of Philip Morris Earnings Preview has additional details.

(1) Pricing gains to bolster top-line growth

  • Trefis estimates Philip Morris’ Q2 2023 revenues to be around $8.7 billion, reflecting an 11% y-o-y rise and slightly above the $8.6 billion consensus estimate.
  • 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. It acquired Swedish Match, Scandinavia’s largest snus (a moist smokeless tobacco product) manufacturer, in Q4 last year.
  • The company is expected to see continued growth in heated tobacco units, a trend seen in the recent past.
  • Looking at Q1 2023, the company reported net revenue of $8.0 billion, marking a 3.5% rise over the prior-year quarter.
  • The sales growth was driven by a 10% rise in heated tobacco units shipment volume and a 7% rise in combustible tobacco pricing. However, cigarette volume was down 3%.
  • Our dashboard on Philip Morris Revenues has more details on the company’s segments.

(2) EPS likely to be slightly above the consensus estimates

  • Philip Morris’ Q2 2023 adjusted earnings per share (EPS) is expected to be $1.50 per Trefis analysis, slightly above the consensus estimate of $1.47.
  • The company’s adjusted EPS of $1.38 in Q1 2023 was down 4.4% from $1.58 in the prior-year quarter.
  • The company’s adjusted operating margin contracted 630 bps during the quarter due to higher inflationary pressure on SG&A. Our Philip Morris Operating Income Comparison dashboard has more details.
  • For the full-year 2023, we expect the adjusted EPS to be higher at $6.28 compared to $5.98 in 2022.
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(3) PM stock looks like it has some room for growth

  • We estimate Philip Morris’ Valuation to be around $107 per share, 10% above the current market price of $98.
  • This represents a 17x P/E multiple based on a forward EPS estimate of $6.28, compared to the last three-year average of 15x. Given the expected strong growth in the heated tobacco business and from the integration with Swedish Match, we have assigned a slightly higher multiple than the historical average.
  • If the company reports upbeat Q2 results and provides the 2023 outlook better than the street estimates, the P/E multiple will likely be revised upward, resulting in higher levels for PM stock.

While PM stock seems to have some 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 portfolio that aims for long-term growth? Here’s a value portfolio that’s done much better than the market since 2016.

 Returns Jul 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 PM Return 1% -2% 8%
 S&P 500 Return 0% 16% 100%
 Trefis Multi-Strategy Portfolio 4% 24% 298%

[1] Month-to-date and year-to-date as of 7/13/2023
[2] Cumulative total returns since the end of 2016

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