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Yamil Berard
Yamil Berard
Articles (192) 

Tobacco Giant on the Brink of a Turning Point

FDA could stamp Philip Morris' tobacco product as first in the US that causes less harm than cigarettes

As the second half of the year unfolds, the investor community is becoming increasingly impatient to learn results of the U.S. government's review of a new smokeless cigarette.

The Food and Drug Administration is scrutinizing Philip Morris International's (NYSE:PM) IQOS technology. which is said to slowly heat tobacco rather than burn it.

Approval would likely change the face of smoking as it would bring to market the first tobacco product that is a less harmful option to cigarettes.The product has had impressive sales in places like Japan, where 40% of the company’s shipments have gone.

To a company whose shares have been battered by declining revenues, this could be a very big thing. The growing interest obviously hasn’t been overlooked by guru investors who made a mad dash to Philip Morris’ shares in the early months of the year, just about when an FDA panel said it was looking at the product. In the first quarter, positions were initiated by the likes of gurus such as David Dreman (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Ray Dalio (Trades, Portfolio)'s Bridgewater Associates and Paul Tudor Jones (Trades, Portfolio). In the second quarter, the T Rowe Price Equity Income Fund (TradesPortfolio) and Ken Fisher (Trades, Portfolio) added to their holdings.

Guru Jeff Auxier (Trades, Portfolio) told shareholders in February that he believes FDA approval is imminent.

If the company receives FDA approval for its product, it undoubtedly will have a golden opportunity to be ahead of the competition. It will likely move forward to market the product as less harmful than cigarettes.

Final word from the FDA about whether it will be sold in the U.S. is said to be released at any moment.

So far, the FDA panel that recommends action has said the product reduces smokers’ exposure to toxins, but there’s no proof yet that it would result in less harm and disease.

Philip Morris leads the Global Tobacco Products industry in market cap, according to GuruFocus' industry overview pages. The company reports 53% of the total weighting of the industry. In second place is Altria Group (NYSE:MO), followed by Vector Group Ltd. (NYSE:VGR) and Universal Corp. (NYSE:UVV) 0.7%.

Philip Morris International

The stock was higher in trading on Tuesday afternoon to just under $84 a share, up 0.81%. In the last year, the stock has fallen more than 20%. In five years, it has lost 6%. Its 52-week range is $76.21 to $120 a share. GuruFocus' median price-sales chart indicated it is trading below the historical value.

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Philip Morris is trading at 20 times earnings and 15.77 times forward earnings. The price-earnings ratio is priced lower than 80% of its 30 peers in the Global Tobacco Industry, while its forward ratio is 73% lower than peers in the space. It has a price-sales ratio of 4.4, which is lower than 75% of the companies in its peer group.

The company pays a 5.17% dividend, which is lower than 68% of its peers. It has good business operations with a Piotroski F-Score of 5.

Revenues for the trailing 12 months have hit $30.3 billion. Analysts are predicting revenue of $34 million in 2020.

The company has been struggling with U.S. sales since smoking has increasingly become less popular. Revenue per share has been on the decline while net income has also struggled in recent years.

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The company has spent more than $3 billion on technologies for the product and other smokeless tobacco products. It says on its website that it aims to replace cigarettes with the smoke-free products that it is developing and selling.

GuruFocus gives Philip Morris a financial strength rating of 5 out of 10 and a profitability and growth rating of 5 of 10 as well.

A total of nine analysts are for a strong buy approach to the company. One analyst is for a buy; two are for a hold. None are for an underperform or sell approach.

As of June, the company reported earnings per share of $1.41, beating a consensus estimate of $1.23 per share, a surprise of 14%. The reported was released on July 19.


Rating: 5.0/5 (1 vote)

Voters:

Comments

bisong
Bisong premium member - 11 months ago

PM does not sell products in USA. That would be MO.

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