Philip Morris International Inc. (PM) has experienced more than impressive growth in both its share price and its profits in the past four years. Lately its gains have petered out. The problem is that much of that growth has come from a few countries in Asia, and if one analyst report is accurate, there will be little to no growth from those areas ahead. Nomura Securities is downgrading Philip Morris to a Reduce rating from Neutral, but for all practical purposes it is a Sell rating. The firm's $76 price target suggests downside of more than $10 ahead.
The three countries cited are Japan, Indonesia and the Philippines, all supposedly accounting for 60% of the profit growth. Now the analyst is modeling organic profit growth as being flat for the next two years. Lower growth in Indonesia and issues in the Philippines are two drivers. Japan is the largest market for Philip Morris in Asia, and the report says that the company is having trouble maintaining its recent gains in market share because of Japan Tobacco investing to recapture its lost share.
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Part of the reason for downgrading the price target is a forward earnings multiple being 13.5 ahead, rather than up to 16, which certainly implies far lower growth and maybe no organic growth at all. While most of this downgrade report is dominated by Asia, Philip Morris is also among the tobacco players facing increasing pressure from Europe.
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Shares recently were trading at $86.16, against a 52-week trading range of $82.10 to $96.73. If that $76 price target is hit, more losses are coming along with a new 52-week low.
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Be advised that the consensus analyst price target average is up around $96.00, some $20 higher than this new Sell rating is giving to Philip Morris International.