Back in November, I called Philip Morris International, Inc (PM) the best value in tobacco stocks. At that time, the company boasted a fair price and had very good dividends. Philip Morris led the industry in the last twelve months; the field had to show sufficient growth in the future, and had the financial flexibility to buy back a large number of shares which he did.
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I gave another brief update on the tobacco industry in February, confirming why I thought that the name should be in your portfolio. My last update, Philip Morris has come a few weeks ago when the company announced another round of news that was very nice for current and future investors. In November, Philip Morris was a very good run, as you can see from the chart below. Philip Morris, in blue, was the second best performer overall second place after Altria (MO), but was in first place for a fair amount of time. Shares of nearly 29% since then (including dividends), and got 36% last year. The question is, this is the best name in the industry?
So yes, let’s see where these five names are. The three I have not mentioned so far are Lorillard (LO), Reynolds American (RAI) and British American Tobacco (BTI). I have used these five articles in the past, so it makes sense to just be consistent and use them again. First, I’ll look at the current dividend, which is probably what most investors in the names of most concern. The following table shows the last payment of dividends, and this figure is an annual and ongoing profitability. British American pays dividends twice a year, with the first payment is higher than the second rule. For this company, the annual cost is lowest for the last two payments.
Philip Morris has the lowest yield at the moment, but he paid that 77 percent of dividends for four consecutive quarters. When he announces its next dividend in the next couple of months, most investors expect an increase. Currently, a new series of dividends (from what I hear) is the range of 80 to 90 cents in the quarter. This wide range but let the mid $ 0.85. That would be an annual dividend of $ 3.40, which is currently yield about 3.9%. Now there is likelihood that Philip Morris raises it even more, given the number of shares, this redemption of the current (thereby reducing the amount of the outstanding share). Remember that Philip Morris raised its dividend from $ 0.64 to $ 0.77 in 2011, so a raise to $ 0.90, there can be no question, and that would get closer to the profitability of other names. But even the $ 0.90 quarterly dividend will only yield 4.12%, slightly lower than some other names.
Now the second thing we look at growth in terms of revenues and profits. The following table shows the current expected growth (from analysts) in 2012 and 2013, and just two years (from 2011 to 2013). Now remember, Philip Morris withdrew its forecast for profit in recent years. The company announced new earnings per share from $ 5.10 to $ 5.20 in 2012. That’s up a penny from the previous forecast, which makes sense because he said unfavorable changes in currency will be worth up to $ 0.25 (last update was $ 0.15 impact). As for the two-year amount, Philip Morris is the second largest in terms of expected revenue growth, and the third in terms of revenue growth. Lorillard is in first place in both categories. Philip Morris, due to unfavorable currency fluctuations, are now considered potential rooms revenue declined in the past month. Analysts have removed the number this year for ten cents and the next year at 8 cents last month. Prior to these changes, the expected number of two years was 19.9%.
Thus, in terms of growth, Philip Morris is above average, but it’s not the name of the top at the moment. But growth is only one thing to see. You also need to look at what you pay for this growth. The following table shows the sales price and price-to-income ratio to each based on the current capitalization, and is now expected revenues and profits for everyone. Philip Morris is the most expensive of the two evaluation metrics, except for the 2012 rate per person income. Philip Morris was on the higher end of the range of estimates, when I last updated in November as well. I would not be too concerned at this point, because Philip Morris is not much more expensive than others, but investors should be aware that they pay dues. Now, if in 2013 the selling price by more than 5 or 2013 P / E closer to 20 right now, then I might worry. But the company seemed to be trading at a premium to the rest for some time. This is an investor favorite, and sometimes pays for it. It seems that investors are willing to do it.
Until now, you would say that Philip Morris is not the best of breed in this industry. The figures will support this statement. So, what is the company going for it? Well, first, these top-level margins. From the perspective of the last twelve months of the field, Philip Morris is close to the top of the OS, but retains a significant leadership position for profit. In fact, the leading profit (333 bp) increased in November with my updates (327 bp). But another thing that makes Philip Morris are a great investment is the fact that the company buy back more stock than others at this time. Currently, Philip Morris bought back $ 1.5 billion of shares in the quarter; the company repurchased nearly $ 10 billion over the past two years. Philip Morris recently announced a new buyout program (see “very pleased” link above).
Altria bought a little less than $ 300 million in Q1, and can buy even less in future quarters. Lorillard bought less than $ 200 million in the third quarter, which ended its purchase program, not the ads were made for future purchases. Reynolds American bought $ 300 million shares in Q1. British American bought about $ 240 million stake in the 1st quarter (the official figures were 150 million pounds of the currency). This means that the four companies together gained a little over $ 1 billion in shares during the 1st quarter. Philip Morris itself bought $ 1.5 billion, and plans to buy back as much per quarter in 2012. This is one of the reasons why investors are willing to pay a small premium for the shares, as I noted above. Now I’ve shown you, the potential growth prospects for these firms, and analysts on the street. The final numbers I will present now an analyst with the opinion of each. This will include an assessment of (1 to 5, where a strong buy and 5 on sale), as well as the average analyst target price, and growth potential for the purpose of the current stock price.
The difference of 0.2 is not so much, but it still means, Philip Morris is the favorite. Analysts still believe it can go higher, but not huge. Although most of these names have seen huge rallies in the last 6-12 months, most investors buy on price, rather than for growth. About $ 91 target price makes sense for a company Philip Morris, as we tend to see the name of the analysts to lower estimates when it receives about $ 90. Well, let’s resume. The company has the highest margins in the industry and buys the stock itself right now. Analysts like the most, but I do not see a ton up. Revenue and earnings growth is above average, but not the best of five in this group. Evaluation is more expensive than the others. In general, Philip Morris is still a strong investment, and I still consider it above average for the industry. However, recent earnings guidance for me to take down a bit and the name does not as many categories as it was in November. So, I’m not going to say that this is the best in its class right now, but I still think that in the general discussion on the favorite in the industry.
I would reconsider its position, when we see the next round of income and potential increase in dividend. At the moment, I still recommend a good starting point between 16 and 16.5 times earnings this year (we are now at 16.85 times). This gives you a number of the entry price of $ 82.88 to $ 85.47, from about the middle of $ 84.18. Generally speaking, the $ 84 was a good level of support on the name in recent months.
Disclosure: I have no positions in any stocks mentioned, and does not intend to initiate any positions within the next 72 hours. Enditem
