Wednesday, October 19, 2011

Phillip Morris Int'l (PM) 2011 Review

Philip Morris International (PM ) is a spin off from Altria. It manufacturers, sells and distributes a wide range of tobacco products in markets outside the US.

Operating profits from this segment of the old Altria business grew at an 11% annual rate. PM expects earnings to grow at a 10-11% rate in the future; given its commitment to payout 65% of profits, the dividend growth should match growth of earnings. The company is expected to earn a return on equity in the 50-60% range.

Management believes earnings will advance based on:

(1) strengthening its brand through product innovations such as smoother taste, new tobacco blends and innovative packaging which provides pricing power,

(2) price increases,

(3) management’s focus on cost controls, productivity gains and manufacturing efficiencies,

(4) strong cash flows allow for an ongoing major stock buy back program


(1) very competitive industry,

(2) risk of continuing increases in taxes on cigarettes,

(3) it is subject to government regulations worldwide.

PM is rated B++ by Value Line, has a higher than we would like debt to equity ratio of about 79%, and its stock yields 3.9%.

Statistical Summary

Stock Yield Dividend Growth Rate Payout Ratio # Increases Since 2005
PM 3.9% 11% 56% 3*
IND 5.5 10 65 NA
Debt/Equity ROE EPS Down Since 2001 Net Margin Value Line Rating
PM 79% 123% 1* 11% B++
IND 66 47 NA 15 NA

*the company has only reported separately for four years


Note: PM stock made good progress off its March 2009 low, quickly surpassing the down trend off its September 2008 high (straight red line) and the November 2008 trading high (green line). Long term, PM is in an up trend (blue lines). Until recently, it was in an intermediate term up trend, but broke that trend and re-set to a trading range (purple lines). The wiggly red line is the 30 day moving average. The Dividend Growth Portfolio owns a full position in PM, while the High Yield Portfolio owns a 70% position. The stock is currently on both Buy Lists. The lower boundary of its Sell Half Range is $79.