Philip Morris International Inc. (NYSE:PM) is a multinational tobacco company that carries some of the biggest brands of cigarettes and disposable vapes. The company found itself at ground zero of the vaping crisis two years before the coronavirus lung infection outbreak.
Its products could pose a health risk, but investors have their eyes on the reward, specifically is Philip Morris stock a Buy?
Despite decades of health warnings, nearly 40 million U.S. adults still smoke cigarettes, according to the U.S. Centers for Disease Control (CDC). The agency estimates 1,600 Americans under the age of 18 will smoke their first cigarette today.
Vaping is often marketed as a safer alternative, but even it got hit with controversy over causing popcorn lung and other rare lung diseases. Vaping is a complicated category, and the company is introducing dry herb vaporizers to bridge the gap between smokers and vapers as the economy struggles.
However, Philip Morris International (PM) focuses on the foreign markets and is a separate company than Philip Morris USA, which remains a subsidiary of Altria.
For investors, it’s time to roll Philip Morris up and light a match to see if it will provide smoking returns to investors or leave their portfolios gasping for air.
Philip Morris Brands Are Globally Known
Philip Morris is one of the largest tobacco companies in the world and a component of the S&P 500. The company was originally founded in 1847 and became a subsidiary of Altria before Philip Morris International was spun off in 2008.
Philip Morris International brands include Marlboro, L&M, Benson & Hedges, and Merit, but only overseas. The company’s territories include Europe, Australia, Africa, Latin America, Canadian, and Asian tobacco markets, and it runs popular regional brands in each.
It is, however, responsible for the IQOS cigarette vape device release in North America.
In July 2020, the U.S. Food and Drug Administration (FDA) authorized Philip Morris International to market its IQOS electronic tobacco heater to vape without smoking. This is meant as a “modified risk” tobacco product (MRTP) that still walks shaky ground, despite being authorized to sell since 2019.
According to the World Health Organization, global tobacco use fell from 1.39 billion to 1.33 billion, or approximately 60 million people. And some news outlets report COVID-19 may be worse for your lungs than 20 years of smoking, prompting some to restart.
Meanwhile, the industry also faces generations of stigmas and the rise of legalized medical and recreational cannabis. Investors wonder if now’s the time to buy into Philip Morris.
Is Philip Morris Stock A Buy?
Philip Morris International has an upside potential of $91.10 per share according to a financial analysis where cash flows are projected out to the future and discounted back to the present.
Overall analysts are optimistic that the company has more room to run to the upside before it reaches fair value, with 9 rating the stock a Buy, 5 rating it a Hold, and no analysts assigning a Sell rating.
The company continued paying and even raising its quarterly investor dividend payments through the pandemic. The annual dividend of $4.80 represents a hefty 5.92 percent yield. And it has a solid dividend payment history.
The company beat earnings estimates in every quarter of 2020, registering $3.92 earnings per share (EPS) in the first nine months of the year. Those forecasts weren’t very positive anyway, because the tourism restrictions dismantled much of the company’s duty-free tobacco sales.
Still, this could represent a discounted buying opportunity in a company with a proven sales record, product demand, and prime shelf space in stores and retailers of all types, from Walmart Supercenters to grocers, c-stores, and newsstands.
Bullish investors are drawn to high dividends and growth potential but what are the hazards of buying this vice stock?
Philip Morris Stands In The Face Of Major Trends
Before the pandemic, the world faced a vaping-associated lung injury crisis. In the U.S. alone, 2,807 people were hospitalized over a two-year period with vape-related illnesses. Although vitamin E acetate was linked to the illness, the entire vape community reeled.
Legislation was introduced to regulate gray areas in the modern tobacco industry. Smoke shops could no longer sell fruit flavored cigars or vape cartridges, and any type of marketing toward minors was outlawed. Some countries got even more stringent than the U.S.
This is far from the first time that the industry faced concerns over lung cancers and other diseases. In 1998, U.S. tobacco companies were held to the Master Settlement Agreement that has them paying annually towards cancer research and anti-tobacco marketing in perpetuity.
That makes tobacco unique in that it’s funding its own anti-industry campaigns. Every time you see a Truth Initiative commercial, it’s funded by Big Tobacco. That automatically bottlenecks any potential gains for investors through a “phantom debt.”
And with both smoking and vaping on the receiving end of regulatory pushbacks, this industry faces a lot of obstacles, not least from its rivals.
Does Philip Morris Need To Cannibalize Sales To Win?
Philip Morris International is obviously friendly with Altria, and the companies are more than willing to work together to dominate their respective territories. But it still faces competition from the likes of Reynolds American, British American Tobacco, and Japan Tobacco, among others.
When it comes to vaping, Juul (which Altria has a big stake in) was the main target of that crisis. Other vape brands survived relatively unscathed.
However, each company ultimately must cannibalize its own revenue streams to remain nimble and competitive in a rapidly changing market.
Is Philip Morris Stock A Buy? The Bottom Line
Philip Morris International is one of the biggest tobacco companies in the world and represents the Philip Morris brands outside of the U.S. The company faced two crises in a row: the vape crisis and global pandemic. But it’s still generating revenues as people continue to lean on vices to get through stressful times.
Tobacco usage may be on the downtrend, but vaping and cannabis usage are on their way up. The company can pivot into whatever trends come up next. For now, its range of tobacco products cover every addition, including those who love dividend stocks.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.