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What to Expect from Philip Morris (PM) This Earnings Season?

Zacks Equity Research

Leading international tobacco company, Philip Morris International Inc. PM is all set to report its first-quarter 2017 results on Apr 20, 2017, before the market opens. The question lingering in investors’ minds is whether the company will be able to post a positive earnings surprise in the to-be-reported quarter. Its earnings have lagged the Zacks Consensus Estimate in three of the trailing four quarters, with an average miss of 4%.

On the contrary, a look at Philip Morris’ stock performance reveals that its shares have rallied 23.6% year to date, thereby outperforming the Zacks categorized Tobacco industry’s gain of 14.4%.

Let’s see how things are shaping up for this announcement.

Which Way Are Estimates Treading?

Let’s look at the estimate revisions in order to get a clear picture of what analysts are thinking about the company right before earnings release. The Zacks Consensus Estimate for the first quarter has decreased by 2 cents, over the last seven days. However, the same has been stable at $4.89 for 2017 in the said time period.

The current Zacks Consensus Estimate of $1.03 per share for the first quarter, reflects growth from 98 cents posted in the prior-year period. Further, analysts polled by Zacks expect revenues of $6.42 billion for the said quarter, which is also 5.5% higher than the year-ago quarter.

Philip Morris International Inc Price, Consensus and EPS Surprise

Philip Morris International Inc Price, Consensus and EPS Surprise | Philip Morris International Inc Quote

What Does the Zacks Model Unveil?

Our proven model does not conclusively show that Philip Morris is likely to beat earnings estimates this quarter. This is because a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Philip Morris has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.03. Although the company’s Zacks Rank #2 increases the predictive power of ESP, we need a positive Earnings ESP in order to be confident about an earnings surprise.

Factors Influencing the Quarter

Philip Morris continues to benefit from its strong portfolio of tobacco brands and pricing power. Moreover, management remains focused on the growing e-cigarette category and less harmful alternative tobacco products to cater to the changing consumer preferences.

Additionally, heatsticks and IQOS product category (Heatsticks that heat tobacco instead of burning it) are gaining popularity since its national expansion. Further, the company continues to boost presence in the unconventional tobacco category in an attempt to combat declining volumes. Regarding this, management has announced that it will invest approximately €300 million in order to convert one of its cigarette factory at Papastratos into a manufacturing plant for tobacco sticks for reduced-risk product — iQOS.

While these factors make us optimistic about Philip Morris’ upcoming results, we prefer to remain cautious about the huge excise tax increase in Argentina, the surge of illicit trade in Pakistan and the declining cigarette volumes, particularly  in Japan.

Further, ongoing anti-tobacco campaigns and price rise to offset rising taxes are also hampering cigarette volumes. Moreover, increasing regulation over consumption of e-cigarettes is also raising a concern.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Newell Brands Inc. NWL has an Earnings ESP of +13.79% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Energizer Holdings, Inc. ENR has an Earnings ESP of +3.03% and a Zacks Rank #2.

Nordstrom, Inc. JWN has an Earnings ESP of +3.70% and a Zacks Rank #3.

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