Should you buy, sell or hold Philip Morris shares around $100?
Despite a 3% increase since the beginning of the year, we believe Philip Morris stock (NYSE: PM) still has more room for growth. PM stock has risen slightly from around $96 in early January to $98 now. But that 3% year-to-date rise for PM is much better than the -13% returns for the broader S&P500 index.
Looking further ahead, PM stock is down 8% from levels seen at the end of 2017. This marks an outperformance against its counterpart. Altria Stock, which fell by 37% over this period. However, the broader markets performed much better, with the S&P 500 index up 57% over the same period.
This 8% drop in PM stock since the end of 2017 can be mainly attributed to 1. the company’s P/S ratio fell 22% to 4.5x trailing revenue from 5.7x in 2017, offsetting 2. Philip Morris earnings growth of 18% to $34 billion over the last twelve months, compared to $29 billion in 2017, and 3. a <1% drop in its total shares outstanding to 1.6 billion currently. That means the company's revenue per share rose 18% to $21.85 today from $18.48 in 2017.
Philip Morris sells its tobacco products in markets other than the United States. Revenue comes from the sale of cigarettes and its flagship smokeless tobacco offering – IQOS. Due to supply disruptions, the company’s revenue growth has been affected during the pandemic. More recently, the company has reduced its Russian operations, due to the complexity resulting from the geopolitical crisis. Russia is a big market for tobacco products, and the company’s plans to exit that market altogether will impact its finances in the short term. For perspective, the Eastern European market, which includes Russia and Ukraine, accounted for 11% of the company’s total sales in 2021. However, the company is struggling to exit the Russian market, and the timeline could be in 2023. 
There are positives for Philip Morris to look forward to. It recorded 3% growth in net revenue in the first half of 2022, driven by a significant 42% increase in sales in the Middle East and Africa. The company saw an increase in IQOS sales and benefited from higher cigarette prices. The company is also in the process of acquiring Swedish Match AB in a $16 billion deal, which will strengthen Philip Morris’ position in smoke-free products.
Although the company has a good outlook, it is facing headwinds from the current supply chain disruptions, rising inflation and rising oil prices, which are driving down the disposable income of consumers. These factors could affect the performance of Philip Morris in the short term. That said, we believe there is still room for growth in the PM stock. We estimate Philip Morris’ assessment at $111 per share, reflecting a 13% rise from its current price of $98. Although PM stock is trading at 4.8x trailing earnings at its current levels, compared to the past three-year average of 4.6x, we attribute a higher multiple to PM given its revenue growth. IQOS. Additionally, if successfully completed, the deal with Swedish Match will further improve the prospects for its smokeless tobacco offerings.
While the PM stock appears to have more room for growth, it’s worth seeing how Philip Morris Peers price on the measures that matter. You will find other useful comparisons for companies in all sectors on Peer comparisons.
In addition, the Covid-19 crisis has created many price discontinuities which can offer attractive business opportunities. For example, you’ll be surprised how counter-intuitive stock valuation is to Philip Morris vs. Entergy
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