Philip Morris Keeps On Smokin' In Face Of Higher Tobacco Taxes

Source from:  Forbes 12/20/2011

It looks like the decisions of the governments around the world to increase taxes on cigarettes has no effect on the profitability of Philip Morris Intl., as the tax burden is subsequently passed on to the consumers. Taxes have been increased in several countries including Spain, France, the U.S., India which has resulted in multiple price hikes this year. The company competes with British America Tobacco and Imperial Tobacco Group. We have a $75 price estimate for Philip Morris International, which is in line with the current market price. See our complete analysis of Philip Morris International Budget Deficit, No Problem At a time when governments around the world are struggling not to exceed the budget deficit targets, generating additional revenue by taxing the tobacco industry is an easy option. Spain, for example, raised the taxes this year to generate an additional revenue of €780 million (> $1 billion). Similarly, tax increases in Turkey forced Philip Morris to increase the prices from 28% to 44% on its various brands. France, too, has raised the prices this year and taxes now make up for 80% of the cigarettes' price. Despite the price hikes, the company was able to increase its operating income by 13% y-o-y for European Union in the third quarter. Asia is the biggest contributor of the company in terms of revenues. While revenues increased 56% y-o-y in the third quarter, operating income soared 86%. The operating margins should see a sharp increase in the coming years due to lax regulations combined with rising disposable incomes. We estimate Asia segment contributes 35% to the stock price. Cigarette companies around the world are also focusing on smokeless tobacco products. The smokeless tobacco products have seen a healthy growth in the last few years. These are perceived to be less harmful by the public and attract fewer taxes. Enditem