Management raised the lower end of its EPS guidance for the remainder of the year, prompting analysts to revise their estimates higher for both 2011 and 2012. It is a Zacks #2 Rank (Buy) stock.
The company continues to produce tons of cash, which it has been using to repurchase its stock and raise its dividend. It currently yields an attractive 4.3%.
Philip Morris International is a global tobacco company with seven of the world's top 15 international brands. Its flagship brand, Marlboro, is the number one cigarette brand in the world.
Philip Morris International was spun-off from Altria in March 2008. It is headquartered in New York, New York and has a market cap of $123 billion.
Third Quarter Results
Philip Morris delivered another quarter of strong financial results on October 20. Earnings per share came in at $1.37, beating the Zacks Consensus Estimate of $1.23. It was a stellar 37% increase over the same quarter in 2010.
Net revenues surged 26% year-over-year to $8.362 billion, well ahead of the Zacks Consensus Estimate of $7.548 billion. Cigarette shipping volume rose 4.4%, excluding acquisitions. Excluding foreign currency effects, revenue rose 16%.
Revenues were up around the globe but soared 39% in Asia, excluding currency effects, driven by gains in Japan.
Gross profit expanded from 25.5% in the third quarter of 2010 to 26.6% of net revenues. Meanwhile, operating income grew 30% over the same period.
Management raised the lower end of its earnings guidance for 2011 following strong Q3 results. This prompted analysts to revise their estimates higher for both 2011 and 2012, sending the stock to a Zacks #2 Rank (Buy).
The Zacks Consensus Estimate for 2011 is now $4.84, representing 25% EPS growth over 2010. The 2012 consensus estimate is currently $5.20, corresponding with 8% EPS growth.
As you can see in the Price & Consensus chart, consensus estimates have been steadily rising over the last several months as Philip Morris has delivered 4 consecutive positive earnings surprises:
Philip Morris continues to generate enormous amounts of free cash flow, which it is using to return value to shareholders through stock buybacks and dividend hikes. In the third quarter alone, the company bought back 21.2 million shares for $1.4 billion.
It also raised its dividend by 20% during the quarter. It currently yields a solid 4.3%.
The valuation picture looks reasonable for PM with shares trading at 14.0x 12-month forward earnings, in-line with the industry average. Its price to sales ratio of 1.7 is well below the peer group multiple of 2.2.
The Bottom Line
With rising earnings estimates, strong growth projections, a juicy 4.3% dividend yield and reasonable valuation, Philip Morris International still offers attractive total return potential.
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