Phillip Morris International

[Joey Batz]

I'm just curious as to what everybody thinks about Phillip Morris International (PM) at current valuation. I'm hearing noise that it's being overbought and that a drop in price is "imminent". Curious as to other people's opinions on it.

[ChadR]

It is my largest position. So right now I am just reinvesting the dividends. I see it currently as fair valued. If I didn't have such a large holding of PM stock, I would probably be adding slowly to it. Not aggressively since I don't believe that it is undervalued.

[EricL]

I think in the long run it will be a great stock to hold but will be facing continued headwinds in the near term as it fights against the strong dollar.

The payout ratio has gotten above their guidance so dividend growth may lag a bit for a year or two until they can get balanced out again with earnings.

[Kerim]

PM is a tough call right now. I generally am a big fan of tobacco stocks, and PM is one of my bigger positions. But earnings are seriously stalled and, as Eric points out, the payout ratio is headed up fast. I'll try to do a deeper dive on this one later today.

(11-17-2014, 02:39 PM)Joey Batz Wrote: I'm hearing noise that it's being overbought and that a drop in price is "imminent". Curious as to other people's opinions on it.

Though I will pause to add that you can always ignore with confidence such "noise." Nobody nobody nobody knows what the stock price will do in the short term. Period. End of story. (Except maybe an insider, and you want nothing to do with that.) Someone might guess correctly, which makes that person look smart, but even then, they did not "know" what was going to happen in the short term.

UPDATED: I just updated my spreadsheet on PM. Nothing too surprising. I think the biggest worry indeed is the fact that earnings are off a lot this year. I am not sophisticated enough to fully understand, much less predict, how currency fluctuations may impact earnings going forward. But in any case, need to see those start to move in the right direction at some point.

By my math, given a guess as to how Q4 earnings might look, it looks like the payout ratio for 2014 is going to be higher than 80 percent. For perspective, MO explicitly targets a payout ratio of 80 percent. PM has no such target that I am aware of, and more alarming is the rate the the payout ratio has increased. This is of course caused by the combination of the sharp earnings decrease and this year's relatively healthy 9.2 percent dividend raise.

All of that said, I continue to be confident in tobacco companies generally. And PM's 4.6 percent initial yield is hard to ignore. If earnings do not move quickly in the right direction, I imagine that the dividend growth rate is going to fall off sharply and quickly. But 4.6 percent is a pretty high dividend yield for PM, historically, suggesting that it might be a good entry point. You're taking some risk in exchange for that, but long-term, I agree that the company should be just fine.

[Robandcindy2]

http://theconservativeincomeinvestor.com...ss-owners/


Interesting take by another author.....

[kayboy]

(11-30-2014, 05:11 PM)Robandcindy2 Wrote: http://theconservativeincomeinvestor.com...ss-owners/


Interesting take by another author.....

I read somewhere...probably SA, that if you had invested $1000 in PM in 1957 and did nothing more than reinvest the dividends, you would have $5.8 MILLION today.
I'd try it, but I'm 63. Doubt I'll live that long. If it wasn't a $50 stock, I would add to my measly 452 shares and give it a shot.

[Kerim]

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?

[NilesMike]

Added to PM today @ 78.09. Lowering my costs further and couldn't resist that return.

[benjamen]

PM currently pays out $4 per share in dividend.
PM made $4.76 per share last year.
PM is forecasted by most analyst to make $4.20-4.80 per year over the next two years.
If you look at their Income Statement, Balance Sheet, and Cash Flow Statements, they have been loading up on debt, with long term debt up to about 2.5 times pre tax income. If PM has to cut something, I am sure they would stop their stock repurchase program before changing their dividend program.

This stock could do very well if the dollar reverts to a historical norm in value, but there are risks while the dollar is so strong. On the other hand, a current yield of 5.15% could make the wait better.

We will find out a lot more in next weeks presentation.
http://finance.yahoo.com/news/philip-mor...00645.html

[crimsonghost747]

(03-11-2015, 12:54 PM)Kerim Wrote: such as plain packaging initiatives.

Just last week the UK government made a decision for plain packaging.. think it was supposed to start at the beginning of 2016 but I'm not sure on that.

I don't know what the situation is on the other side of the pond but in Europe it's not only the governments that are anti tobacco. It's more and more of the people... smoking just isn't viewed as "cool" anymore and year after year the amount of smokers is dropping. It's a change in people's attitude and it's noticeable.

I hold a very small position in PM (one of my smallest ones) and I'm definitely not buying more. I even thought about selling but decided to see what happens and enjoy the steady dividend stream.

[NilesMike]

(03-14-2015, 01:29 PM)crimsonghost747 Wrote:

(03-11-2015, 12:54 PM)Kerim Wrote: such as plain packaging initiatives.

Just last week the UK government made a decision for plain packaging.. think it was supposed to start at the beginning of 2016 but I'm not sure on that.

I don't know what the situation is on the other side of the pond but in Europe it's not only the governments that are anti tobacco. It's more and more of the people... smoking just isn't viewed as "cool" anymore and year after year the amount of smokers is dropping. It's a change in people's attitude and it's noticeable.

I hold a very small position in PM (one of my smallest ones) and I'm definitely not buying more. I even thought about selling but decided to see what happens and enjoy the steady dividend stream.

I have not seen any credible report to support the notion that smoking is on the down swing in Europe.

[Roadmap2Retire]

(03-15-2015, 05:38 PM)NilesMike Wrote:

(03-14-2015, 01:29 PM)crimsonghost747 Wrote:

(03-11-2015, 12:54 PM)Kerim Wrote: such as plain packaging initiatives.

Just last week the UK government made a decision for plain packaging.. think it was supposed to start at the beginning of 2016 but I'm not sure on that.

I don't know what the situation is on the other side of the pond but in Europe it's not only the governments that are anti tobacco. It's more and more of the people... smoking just isn't viewed as "cool" anymore and year after year the amount of smokers is dropping. It's a change in people's attitude and it's noticeable.

I hold a very small position in PM (one of my smallest ones) and I'm definitely not buying more. I even thought about selling but decided to see what happens and enjoy the steady dividend stream.

I have not seen any credible report to support the notion that smoking is on the down swing in Europe.

Perhaps you are not looking in the right place? Almost every report out there shows that the percentage of smokers is declining. A quick Google search reveals a plethora of such reports. Heres an exhaustive report compiled by WHO.

http://whqlibdoc.who.int/publications/20...562099.pdf