Yahoo Finance Why Philip Morris International Inc. (PM) Stock Still Has Long-Term Oomph
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Philip Morris International Inc. (NYSE:PM) is the world’s largest tobacco company. Last week, PM reported earnings that were disappointing.
Earnings were off slightly and although revenue was up 4% compared to the same quarter last year, it came in under analysts’ estimates.
Then, earlier this week, the Food and Drug Administration announced that it was looking into regulating nicotine levels in tobacco products. That really took the wind out PM stock.
But before we bury Philip Morris — a stock that is up 25% year-to-date, even after all the hubbub and still delivers a solid 3.6% dividend — we need to understand what is going on with the stock, how it differs from its sister company Altria Group Inc (NYSE:MO) and what the U.S. dollar has to do with all this.
What’s the Long-Term Story for Philip Morris?
As far as PM stock goes, its quarterly earnings weren’t a big surprise. Tobacco use is declining around the world, which means the company has to gain market share from dominant local brands or cut costs so its margins improve. It also has introduced vaping, or e-cigarettes as an option.
There are still plenty of smokers in the world and the biggest threat to Philip Morris in the short-term isn’t that they’re quitting or onerous U.S. regulatory bodies.
That’s where MO comes in. Altria is the U.S.-only spinoff of Philip Morris. PM sells tobacco products everywhere but the U.S; whereas, MO only sells tobacco products in the U.S. MO has other divisions that help bring in solid, steady cash. And analysts have generally valued MO’s tobacco business as 0, to account for existing or new regulations on its cigarettes and chewing tobacco business.
That means, the recent talk from the FDA doesn’t really apply to PM. And it doesn’t really affect MO, since its tobacco business in the U.S. isn’t an issue. Logistically, regulating nicotine in tobacco products seems good on paper, but how it is actually executed may be significantly more challenging than it sounds.
Bottom Line on PM Stock
No, the biggest challenge Philip Morris has moving forward is the U.S. dollar. The dollar has been strong, especially since Donald Trump was elected president.
But now, as inflation rises, the Federal Reserve is hiking rates and selling off the trillions in mortgages it has in its coffers from its nearly decade-long Quantitative Easing, the dollar is starting to weaken.
And that is great news for PM stock, since it means the local currencies where the company sells its products are getting stronger relative to the dollar. This is what has hurt PM so far this year, not a lack of business.
It’s still guiding for the middle of its previously expected range, assuming the dollar stays where it is. If it weakens from here, that’s all to Philip Morris’ advantage. And the investors who ran away over a couple rough quarters, will lose out on the nice rebound the next four quarters are likely to bring.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
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