- Philip Morris is set to announce its third-quarter earnings results on October 17.
- We expect the rate of decline in the company’s combined shipment volumes to moderate.
- Pressure on its earnings could play spoilsport.
Philip Morris International (PM) will announce its third-quarter earnings results on October 17. We believe the pressure on the company’s top line could ease a bit, which could support its stock. We think the pace of the decline in its combined shipment volumes (including cigarette and heated tobacco units) could moderate sequentially.
Management’s outlook on shipment volumes has also improved. During its second-quarter conference call, Philip Morris stated that its combined shipment volumes would fall 1.0% in 2019. Previously, it had projected a 1.5%–2.0% fall in combined shipment volumes.
We believe growth in heated tobacco shipment volumes and higher pricing will drive Philip Morris’s top line in the third quarter. However, weak cigarette shipment volumes and currency volatility could remain a drag.
Higher pricing and growth in heated tobacco units in higher-margin geographies could continue to support Philip Morris’s margins. However, lower cigarette volumes and increased marketing, administration, and research costs of reduced-risk products could remain a drag.
Philip Morris’s EPS could fall in the third quarter, reflecting higher interest expenses and an increase in the effective tax rate. Moreover, a higher outstanding share count could further suppress its EPS.
What analysts expect
Analysts expect Philip Morris’s revenue to return to the growth path in the third quarter. They expect the company to post revenue of $7.67 billion, implying YoY (year-over-year) growth of 2.2%. Higher pricing and an anticipated increase in heated tobacco shipment volumes could drive the company’s top line.
Wall Street expects Philip Morris to post adjusted EPS of $1.36, down 5.6% YoY. Higher interest expenses and a higher tax rate are likely to remain a drag.
In comparison, Wall Street expects Altria’s (MO) sales and EPS to improve on a YoY basis. However, Altria’s top line growth is likely to take a hit from lower domestic cigarette volumes. Meanwhile, higher interest expenses are expected to hurt Altria’s bottom line. Its lower outstanding share count is likely to boost its bottom line growth in the third quarter.
Philip Morris stock: Analysts see significant upside
Most analysts are bullish on Philip Morris stock. Moreover, the consensus target price indicates a considerable upside in its stock. Among 18 analysts, 13 suggest “buys” on PM, four suggest “holds,” and one maintains a “sell.”
Analysts have a consensus price target of $93.47 on PM stock, implying a potential upside of about 20% based on its closing price of $78.03 on October 14. Philip Morris stock trades at a forward PE multiple of 14.3x, which is lower than the peer average of 18.9x. Philip Morris stock also offers an attractive dividend yield of 6.0%.
In comparison, Altria stock is trading at a multiyear low valuation. Moreover, its current dividend yield stands at 7.9%, which is very high.
Philip Morris stock is up 16.9% on a year-to-date basis. In contrast, Altria is down 13.5%.