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Philip Morris Emerges as a Favorable Pick: Time to Invest


Tobacco maker Philip Morris International Inc. PM has emerged as a favorable pick following its recent upgrade to Zacks Rank #2 (Buy). The company has seen its stock price surge 20.3% over the past one year and nearly 12.4% on a year-to-date basis. Long-term earnings growth of Philip Morris is 8.9% and it has a low beta score of 0.97, which implies that the share price fluctuates very little and provides stability amid a volatile market.

What's Driving the Stock?

Philip Morris is a global leader in tobacco products and its Marlboro brand owns a large market share worldwide.

PHILIP MORRIS Price, Consensus and EPS Surprise

PHILIP MORRIS Price, Consensus and EPS Surprise | PHILIP MORRIS Quote

Philip Morris has been posting higher year-over-year earnings and sales for the past few quarters on a constant-currency basis, driven by the company’s continuous product innovation and pricing power.

Management raised its GAAP earnings projection for 2016 during its second-quarter 2016 earnings conference call. The company now expects GAAP earnings in the range of $4.45–$4.55 as against $4.40–$4.50 anticipated previously. The company reported earnings of $4.42 per share in 2015. The company estimates currency impact of 40 cents per share. Excluding the currency impact and one-time restructuring charges, earnings are likely to increase approximately 10–12%.

Philip Morris’ optimism as well as its growth momentum is well reflected in the positive sentiment prevailing among analysts covering the stock. Analysts expect earnings for fiscal 2016 and 2017 to grow 2% and 11% year over year, respectively. Analysts are optimistic about the fundamentals of the company and have revised their estimates for 2016 and 2017 during the past 60 days.

Additionally, Philip Morris is focusing on less harmful tobacco products in order to cater to growing demand for low-risk, smokeless tobacco products. The company has considerable presence in the unconventional tobacco products category. Further, several of its potentially less harmful products have gained popularity in the market. In this regard, Philip Morris launched a set of Next Generation Products (NGPs) in early 2015 to attract adult consumers while reducing the risks related to tobacco products. The company has also enhanced investment in research and development for the category in 2016.

Further, the tobacco sector seems to be relatively safe for investors at present. Generally, companies like Philip Morris benefit from the addictive nature of their products.

Bottom Line

As a prudent investment strategy advises one to buy outperforming stocks at the right juncture, we suggest you to do the same with Philip Morris to boost the value of your portfolio.

Here are some other stocks from the broader consumer staples sector that one can count on like Sanderson Farms Inc. SAFM, Omega Protein Corporation OME and Tyson Foods Inc. TSN. All the three companies currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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