First off I am very long PM and have held since the spin off. I believe for the first time since just after the spin off PM is coming close to full value or at least coming closer then ever before. Again I am very long PM but when a stock becomes over valued I also believing in selling.
Simply looking at next years earnings estimate of 4.18 and the current PE of 15 that gives us a PPS of 62.7. PM continually surprises at earnings and is buying back shares so even a PPS of 64 is possible. What concerns me is the PE tobacco stock historically almost never trade this high. A PE of 12 is more realistic and that puts us at 50.16.
I know that this is a very crude way of evaluating a company with huge growth prospects and a great div but has this stock run up too much in the short term?
Goldman Sachs has a price target as of 6/30/2010 of $57 on PM. I think that is a very reasonable price target and we will get there way sooner than 1-year down the road, possibly by the end of this year. The $57 is down from $62 due to concerns over European sales and earnings. I think the price targets will be going back up now that Europe is off the critical list.
I like PM which is subject to US accounting rules but is ~100% international in sales. I also like the market and think the downside risk in the market is reasonable. Not zero but not more than 10% either.