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Philip Morris’s 3Q15 Market Valuation and the S&P 500 Index

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Relative valuation

As of October 16, 2015, Philip Morris International (PM) and Altria Group (MO) are trading at a higher valuations than the S&P 500 Index (IVV) (SPY) (VOO) and the Dow Jones Industrial Average (DIA). Philip Morris is trading at a PE (price-to-earnings) multiple of 18.6x forward earnings, and Altria Group is trading at 20.0x forward earnings.

In comparison, the S&P 500 Index and the Dow Jones Industrial Average are trading at forward PE multiples of 17.2x and 15.6x, respectively, as of October 16, 2015.

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Peer group valuations

Competitors Imperial Tobacco Group (ITYBY) and British American Tobacco (BTI) are trading at lower PE multiples of 15.4x and 17.6x, respectively, than Philip Morris. Reynolds American (RAI) is trading at a valuation of 22.2x forward earnings—higher than Philip Morris’s as Reynolds American’s stock spiked by 8.9% since its asset sale announcement to Japan Tobacco (JAPAF) (JAPAY).

To learn more about Reynolds American asset sale to Japan Tobacco, please read the series Japan Tobacco Buys Natural American Spirit’s International Assets.

Reduced gaps

Despite the current environment, Philip Morris delivered strong 3Q15 market share results. The market share overall increased by 1.4 percentage points to 73.7% driven by Marlboro and low priced brand Fortune. The positive share performance was primarily due to reduced gaps since the start of the year following price increases for low priced brands. This led to adult smokers to upgrade to Marlboro and Fortune.

New launches

Philip Morris International is also planning to strengthen its portfolio through investments in brand initiatives, including new launches and innovative line extensions. For example, Marlboro’s capsule and highly mentholated variant increased Marlboro’s shipment volume—by 17.8%—resulting in improved profitability in 3Q15.

In the next and final part of this series, we’ll look at Philip Morris International’s growth initiatives for fiscal 2015.

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