Philip Morris (PM) 2012 Review

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Philip Morris International is a spin off from Altria.  It manufacturers, sells and distributes a wide range of tobacco products in markets outside the US including Marlboro, Philip Morris, Chesterfield. Parliament and L&M.  Operating profits from this segment of the old Altria business grew at an 11% annual rate.  PM expects earnings to grow at a 10-11% rate in the future; given its commitment to payout 65% of profits, the dividend growth should match growth of earnings.  The company is expected to earn a return on equity in the 50-60% range.  Management believes earnings will advance based on:

(1) strengthening its brand through product innovations such as smoother taste, new tobacco blends and innovative packaging which provides pricing power,

(2) growing strength in the Asian markets,

(3)  strong cash flows allow for an ongoing major stock buy back program

 Negatives:

(1) counterfeiting of branded cigarettes,

(2) proposed ban on menthol,

(3) it is subject to government regulations worldwide.

PM is rated B++ by Value Line, has a higher than we would like debt to equity ratio of about 97%, and its stock yields 3.4%.

  Statistical Summary

                 Stock      Dividend         Payout      # Increases  

                Yield      Growth Rate     Ratio       Since 2008

PM           3.4%            9%              60%              4*

Ind Ave     5.2              10                68               NA 

                Debt/                         EPS Down       Net        Value Line

                Equity         ROE      Since 2008      Margin       Rating

PM           97%           167%            1*              11%          B++

Ind Ave     66               48              NA              15            NA

*the company has only reported separately for five years

    Chart

            Note: PM stock made great progress off its March 2009 low, quickly surpassing the downtrend off its September 2008 high (straight red line) and the November 2008 trading high (green line).  Long term, the stock is in an uptrend (blue lines).  Intermediate term, PM appears to be in the process of re-setting from an uptrend to a trading range.  The wiggly red line is the 50 day moving average.  The Dividend Growth and High Yield Portfolios own full positions in PM.  The upper boundary of its Buy Value Range is $84; the lower boundary of its Sell Half Range is $102.