03-11-2015, 12:54 PM
I just updated my spreadsheet on PM, and it is not pretty.
I'm assuming earnings of $4.20 this year. This is of course just a guess, especially with no quarters reported yet this year. It is a bit below the bottom of the company's recent guidance range for the year, but that seems appropriate given the continuing strength of the dollar. This would represent almost a 12 percent decline from 2014, which itself saw a 9.5 percent decline from 2013. Not pretty.
With those earnings, even if they raise the dividend by only a penny in Q4, the payout ratio for the year would be above 95 percent. Even though, for example, MO targets a high payout ratio of 80 percent, 95 percent is really pushing it. They've even suspended the buyback for the time being.
It seems like the majority of these woes have to do with currency fluctuations, but there are of course other strong headwinds as well, such as plain packaging initiatives.
Reading through the 2014 results, though, I do not see a reason to panic. And at today's price, you're looking at a yield of over 5.15 percent!
So the real question is whether PM is fundamentally impaired in some way, or is this instead one of those multi-year rough patches that even best-of-breed companies sometimes go through. I'm inclined to think the latter. Exchange rates will always fluctuate, will turn in PM's favor again. This could be days away, or years. And management will continue to work to get revenue growth going again, increase market share, etc.
The bottom line is that I am sorely tempted to add more PM to my already imprudently high tobacco allocation.
Thoughts?
I'm assuming earnings of $4.20 this year. This is of course just a guess, especially with no quarters reported yet this year. It is a bit below the bottom of the company's recent guidance range for the year, but that seems appropriate given the continuing strength of the dollar. This would represent almost a 12 percent decline from 2014, which itself saw a 9.5 percent decline from 2013. Not pretty.
With those earnings, even if they raise the dividend by only a penny in Q4, the payout ratio for the year would be above 95 percent. Even though, for example, MO targets a high payout ratio of 80 percent, 95 percent is really pushing it. They've even suspended the buyback for the time being.
It seems like the majority of these woes have to do with currency fluctuations, but there are of course other strong headwinds as well, such as plain packaging initiatives.
Reading through the 2014 results, though, I do not see a reason to panic. And at today's price, you're looking at a yield of over 5.15 percent!
So the real question is whether PM is fundamentally impaired in some way, or is this instead one of those multi-year rough patches that even best-of-breed companies sometimes go through. I'm inclined to think the latter. Exchange rates will always fluctuate, will turn in PM's favor again. This could be days away, or years. And management will continue to work to get revenue growth going again, increase market share, etc.
The bottom line is that I am sorely tempted to add more PM to my already imprudently high tobacco allocation.
Thoughts?