Philip Morris International (PM, Financial) is reaching new heights in 2013. With its products being sold in 180 countries it is the proud owner of about 15 cigarette brands: Marlboro, Merit, Parliament, Virginia Slims, L&M, and Chesterfield being some of them. Fiscal year 2013 looks bright for this tobacco giant.
Reasons Why 2013 Is Looking Bright
The stock is currently trading at $88 with a current yield of 4.2%. This U.S.-based company is valued at $145.8 billion, and is the largest manufacturer and distributor of cigarettes in the world. The quarterly dividend has grown from $0.54 to $0.94 over the past five years, for a 5-year compound annual growth rate [CAGR] of 11.72%. It has a current payout ratio of 66%. The stock yields 4.21%, and the 2014 forward P/E multiple is 14.99. It has a good combination of strong free cash flow generation, and manageable financial leverage . The firm's free cash flow margin is expected at about 13.3% in coming years . Total debt-to-EBITDA was 1.5 last year, while debt-to-book capitalization stood at 118%. Over the past five years, profits across the company have increased from $6.3 billion in 2009 to an estimated $9.5 billion by the end of this year. It paid $2.24 in dividends in 2009, and now they are paying out $3.76 per share. The Board has given shareholders a raise every year .
Competition Faced
Philip Morris faces stiff competition from Lorillard Inc. (LO, Financial). Its flagship brands include Newport, Kent, True, Maverick, Old Gold, Blu electronic cigarettes (e- cigs), and the recently -acquired British e-cig brand SKYCIG. On October 23, Lorillard reported third quarter EPS of $0.83. Original menthol Newport cigarettes account for 88% of Lorillard's revenue. This is a major concern for Lorillard because regulators are now reviewing evidence to determine whether mentholated cigarettes expose smokers to increased health risks compared to non-menthol cigarettes.
Reynolds American (RAI, Financial) is another good player in the tobacco industry. The company raised $2.55 billion in debt in late October to pay off existing debts and repurchase shares. This certainly doesn’t go in favor of the company. RAI has a high PEG of 2, which reflects that the company offers expensive growth in comparison to its peers.
Entry into E-Cigarette Market
Philip Morris is planning to enter into the e-cigarette market in the second half of 2014. According to Philip Morris International CEO André Calantzopoulos , Philip Morris would attempt to absolve some of the current issues with the development of its own e-cigarette technology. The company noted that there is strong consumer demand for a less-harmful cigarette alternative , and that through positive results in its own consumer tests as well as broader consumer interest, Philip Morris would begin the development of its own e-cigarette. However, the company did note that current e-cigarettes often have a slower delivery of nicotine when compared to conventional cigarettes, and often have weaker tastes, which result in "limited user satisfaction and reduced adoption rates."
Acquisition Plans
Philip Morris is planning to acquire a 49% stake in United Arab Emirates-based Arab Investors-TA (FZC), which will give it a bigger stake in the Algerian market. Through the acquisition, Philip Morris will own 25% of the STAEM joint venture in Algeria, with which it has had a partnership with since 2005. It is expected that the investment will give a boost to Philip Morris' earning potential in Algeria, and noted this will be reflected in earnings per share results beginning in 2014. In May of this year, Philip Morris also acquired the final 20% interest in its Mexican subsidiary for $700 million.
Concluding on a Positive Note
Philip Morris boasts of a solid international presence with a share of about 15% of the international cigarette market (excluding U.S.). The company engages in sustainability programs to manage environmental performance, reduce the PM long-term carbon footprint and encourage good agricultural practices.
It is the best positioned among its peers to benefit from consumers trading up to premium brands as disposable income rises, and an opportunity to bring the proportion of premium volume up to levels similar to what it has in developed markets can be seen. Considering the company's pricing power and exposure to growing emerging markets, Philip Morris has a bright prospect. Therefore, for investors in search of opportunities with current and future growth potential, Philip Morris International provides a great investment.
Reasons Why 2013 Is Looking Bright
The stock is currently trading at $88 with a current yield of 4.2%. This U.S.-based company is valued at $145.8 billion, and is the largest manufacturer and distributor of cigarettes in the world. The quarterly dividend has grown from $0.54 to $0.94 over the past five years, for a 5-year compound annual growth rate [CAGR] of 11.72%. It has a current payout ratio of 66%. The stock yields 4.21%, and the 2014 forward P/E multiple is 14.99. It has a good combination of strong free cash flow generation, and manageable financial leverage . The firm's free cash flow margin is expected at about 13.3% in coming years . Total debt-to-EBITDA was 1.5 last year, while debt-to-book capitalization stood at 118%. Over the past five years, profits across the company have increased from $6.3 billion in 2009 to an estimated $9.5 billion by the end of this year. It paid $2.24 in dividends in 2009, and now they are paying out $3.76 per share. The Board has given shareholders a raise every year .
Competition Faced
Philip Morris faces stiff competition from Lorillard Inc. (LO, Financial). Its flagship brands include Newport, Kent, True, Maverick, Old Gold, Blu electronic cigarettes (e- cigs), and the recently -acquired British e-cig brand SKYCIG. On October 23, Lorillard reported third quarter EPS of $0.83. Original menthol Newport cigarettes account for 88% of Lorillard's revenue. This is a major concern for Lorillard because regulators are now reviewing evidence to determine whether mentholated cigarettes expose smokers to increased health risks compared to non-menthol cigarettes.
Reynolds American (RAI, Financial) is another good player in the tobacco industry. The company raised $2.55 billion in debt in late October to pay off existing debts and repurchase shares. This certainly doesn’t go in favor of the company. RAI has a high PEG of 2, which reflects that the company offers expensive growth in comparison to its peers.
Entry into E-Cigarette Market
Philip Morris is planning to enter into the e-cigarette market in the second half of 2014. According to Philip Morris International CEO André Calantzopoulos , Philip Morris would attempt to absolve some of the current issues with the development of its own e-cigarette technology. The company noted that there is strong consumer demand for a less-harmful cigarette alternative , and that through positive results in its own consumer tests as well as broader consumer interest, Philip Morris would begin the development of its own e-cigarette. However, the company did note that current e-cigarettes often have a slower delivery of nicotine when compared to conventional cigarettes, and often have weaker tastes, which result in "limited user satisfaction and reduced adoption rates."
Acquisition Plans
Philip Morris is planning to acquire a 49% stake in United Arab Emirates-based Arab Investors-TA (FZC), which will give it a bigger stake in the Algerian market. Through the acquisition, Philip Morris will own 25% of the STAEM joint venture in Algeria, with which it has had a partnership with since 2005. It is expected that the investment will give a boost to Philip Morris' earning potential in Algeria, and noted this will be reflected in earnings per share results beginning in 2014. In May of this year, Philip Morris also acquired the final 20% interest in its Mexican subsidiary for $700 million.
Concluding on a Positive Note
Philip Morris boasts of a solid international presence with a share of about 15% of the international cigarette market (excluding U.S.). The company engages in sustainability programs to manage environmental performance, reduce the PM long-term carbon footprint and encourage good agricultural practices.
It is the best positioned among its peers to benefit from consumers trading up to premium brands as disposable income rises, and an opportunity to bring the proportion of premium volume up to levels similar to what it has in developed markets can be seen. Considering the company's pricing power and exposure to growing emerging markets, Philip Morris has a bright prospect. Therefore, for investors in search of opportunities with current and future growth potential, Philip Morris International provides a great investment.
