Should You Pick Philip Morris Stock After 7% Fall This Year And Q4 Miss?

Philip Morris (NYSE: PM) reported its Q4 results last week, with revenues falling slightly above but earnings missing the street estimates. Although PM stock has fallen around 7% so far this year, we believe it has room for growth. The company reported revenue of $9.05 billion, marginally above the street estimate of $9.01 billion. Its adjusted earnings of $1.36 per share fell short of the $1.45 consensus estimate. In this note, we discuss Philip Morris’ stock performance, key takeaways from its recent results, and valuation.

PM stock has seen little change, moving slightly from levels of $85 in early January 2021 to around $90 now, vs. an increase of about 35% for the S&P 500 over this roughly three-year period. Overall, the performance of PM stock with respect to the index has been quite volatile. Returns for the stock were 15% in 2021, 7% in 2022, and -7% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that PM underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Staples sector including WMT, PG, and COST, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could PM face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump? From a valuation perspective, PM stock looks like it has room for growth. We estimate Philip Morris’ Valuation to be $108 per share, reflecting a 20% upside from its current levels of $90. Our forecast is based on a 16x P/E multiple for PM and expected earnings of $6.45 on a per-share and adjusted basis for the full year 2024. The 16x figure is close to the average value for PM stock’s multiple over the last three years.

Philip Morris’ revenue of $9.0 billion in Q4 was up 11% y-o-y. Heated Tobacco Unit (HTU) shipment volume was up 6%, and combustible tobacco pricing was up 10%, driving the top-line growth. Total cigarette and HTU volume combined was down 0.5% in Q4. The company saw its adjusted operating margin contract 280 bps y-o-y to 33.7%. The bottom line of $1.36 on a per-share and adjusted basis in Q4’23 reflected a 12% y-o-y rise. Looking forward, the company has guided for earnings to be in the range of $6.32 and $6.44 on a per-share and adjusted basis in 2024, falling below the consensus estimate of $6.60.

Philip Morris has some positives to look forward to. Firstly, the company expects its HTU volume to rise in the mid-teens this year, compared to mid-single-digit growth seen in Q4’23. Also, its electronic cigarette – IQOS – has been growing strongly and has surpassed the Marlboro brand in terms of revenue. We think investors can use the current dip in PM stock to enter for robust gains in the long term, with the stock trading a little under 14x forward earnings compared to its last three-year average of about 16x.

While PM stock looks like it has 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.

[1] Returns as of 2/13/2024
[2] Cumulative total returns since the end of 2016

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