Philip Morris' Cigarette Business Remains Strong, Argus Says In Upgrade

Shares of cigarette maker Philip Morris International Inc. (NYSE: PM) have underperformed the broader market over the past year, but the stock is now trading at an attractive level, according to Argus.

The Analyst

Analyst David Coleman upgraded Philip Morris from Hold to Buy with a new $91 price target.

The Thesis

Philip Morris' stock has fallen nearly 30 percent over the past year, while the broader S&P 500 index is up more than 13 percent over the same time period, Coleman said in the upgrade note. (See the analyst's track record here.) 

The stock is now trading at an appropriate valuation of 16.5 times 2018 estimated EPS, which is below the midpoint of the five-year range and boasts a 5.5 percent dividend yield, the analyst said. 

Aside from the stock's valuation, the company's core cigarette business is strong, and consumers are likely to continue paying a premium price for a superior product, Coleman said. Philip Morris' cigarette alternative initiative is "promising" and comes at a time of increasing health awareness, the analyst said. 

Argus lowered its 2018 EPS forecast from $5.30 to $5.05, at the low end of Philip Morris' guidance range. Further growth is expected in 2019, although at a "slightly lower rate" due to softer heated tobacco trends in the Japanese market, Coleman said.

Argus lowered its 2019 EPS estimate from $5.70 to $5.40. 

Price Action

Philip Morris shares were up 0.16 percent at $83.69 at the time of publication Wednesday. 

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