Tuesday, October 7, 2014

Phillip Morris (PM) 2014 Review

Philip Morris International is a spin off from Altria.  It manufactures, 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 a 9% annual rate over the last five years while dividends have grown at a much more rapid pace.  PM expects earnings and dividends to grow at a 6-8% rate in the future based on:

(1) strengthening its brand through product innovations such as smoother taste, new tobacco blends as well as a move into e-cigarettes,

(2) growing strength in the Asian markets,

(3)  strong cash flows allow for an ongoing major stock buyback program,

(4) ability to increase prices,

(5) focus on reducing costs.

 Negatives:

(1) counterfeiting of branded cigarettes,

(2) highly competitive industry,

(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 124%, and its stock yields 4.4%.

  Statistical Summary

                 Stock      Dividend         Payout      # Increases  
                Yield      Growth Rate     Ratio       Since 2008

PM           4.4%            6%              75%             6*
Ind Ave    4.4               8                  62            NA 

                Debt/                         EPS Down       Net        Value Line
                Equity         ROE      Since 2008      Margin       Rating

PM           124%           167%            2*             10%          B++
Ind Ave     63               56                NA             14             NA

*the company has only reported separately for six 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) but flattening out in mid-2013.  Long term, it is in a trading range (blue lines).  Intermediate term, it is in a trading range (purple line is lower boundary).  The wiggly red line is the 50 day moving average.  The Dividend Growth and High Yield Portfolios own 90% positions in PM.  The upper boundary of its Buy Value Range is $60; the lower boundary of its Sell Half Range is $105.
           



10/14

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