Philip Morris International Inc. (PM) recently delivered another strong quarter driven in large part by stellar growth in Asia. Both sales and EPS came in above the Zacks Consensus Estimates, and management raised its guidance for the full year.
This prompted analysts to revise their estimates higher, sending the stock to a Zacks #2 Rank (Buy).
Philip Morris International continues to generate solid free cash flow, which is has been using to aggressively buy back shares and raise its dividend. It currently yields 3.6%.
Company Description
Philip Morris International is a global tobacco company with seven of the world’s top 15 international brands. Its flagship brand, Marlboro, is the number one cigarette brand in the world.
Philip Morris International was spun-off from Altria in March 2008. It is headquartered in New York, New York and has a market cap of $128 billion.
Solid Second Quarter
Philip Morris International reported second quarter results on July 21. By almost every measure, it was another strong quarter.
Earnings per share came in at $1.34, well ahead of the Zacks Consensus Estimate of $1.21. Excluding foreign currency effects, earnings jumped a stellar 21.0% over the same quarter in 2010.
Revenues rose 10.2% year-over-year to $8.273 billion, also beating the Zacks Consensus Estimate of $7.902 billion. Revenue was up in each region, but the real growth driver was Asia where sales soared 27.8%. Indonesia, Japan and Korea were particularly strong.
Operating income was up a solid 16.5% driven by higher pricing and favorable volume/mix. The operating margin improved 160 basis points to 18.3%.
Raised Guidance
Management raised its 2011 EPS guidance by $0.15 to $4.70-$4.80 due in large part to an improved business outlook. This has prompted analysts to revise their estimates higher, sending the stock to a Zacks #2 Rank (Buy).
The 2011 Zacks Consensus Estimate is $4.73, which translates to 22% EPS growth over 2010. The 2012 consensus estimate also moved higher and currently stands at $5.23, corresponding with 11% EPS growth.
Consensus estimates have been consistently moving higher over the last several months as Philip Morris has delivered three consecutive positive earnings surprises:
Cash Machine
Like it or not, the cigarette business is a big money maker. Philip Morris International is certainly no exception. The company generated a whopping $6.2 billion in free cash flow in the first half of the year, a 15.4% increase year-over-year.
The company hasn’t just sat on this cash either. It has been returning it to shareholders through stock buy backs and dividends. PMI repurchased 22.7 million shares of its common stock for $1.5 billion during the second quarter and plans to spend another $5.0 billion this year buying back stock.
Since May 2008, Philip Morris International has spent approximately $18.9 billion repurchasing 378.4 million shares, or 17.9% of the shares outstanding at the time of its spin-off in March 2008.
The company also pays a dividend that yields an attractive 3.6%. It has raised its dividend three times since its spin-off.
Reasonable Valuation
Shares of Philip Morris International trade at 15.2x 2011 earnings, a premium to the industry average of 13.4x, but quite reasonable given its global growth opportunities.
Its price to sales ratio of 1.8 is essentially in-line with its peers.
The Bottom Line
With rising earnings estimates, stellar growth projections, shareholder-friendly management and reasonable valuation, Philip Morris International looks like an attractive buy for growth and income investors.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.
