Phillip Morris Int'l (PM) 2013 Review

Philip Morris International is a spin off from Altria.  It manufacturers, sells and distributes a wide range of tobacco products in markets outside the US including Marlboro, Philip Morris, Chesterfield. Parliament and L&M.  Operating profits from this segment of the old Altria business grew at an 11% annual rate.  PM expects earnings to grow at a 9-10% rate in the future; given its commitment to payout 65% of profits, the dividend growth should match growth of earnings.  The company is expected to earn a return on equity in the 50-60% range.  Management believes earnings will advance based on:

(1) strengthening its brand through product innovations such as smoother taste, new tobacco blends and innovative packaging which provides pricing power,

(2) growing strength in the Asian markets,

(3)  strong cash flows allow for an ongoing major stock buy back program

 Negatives:

(1) counterfeiting of branded cigarettes,

(2) highly competitive industry,

(3) it is subject to government regulations worldwide.

PM is rated B++ by Value Line, has a higher than we would like debt to equity ratio of about 97%, and its stock yields 3.4%.

  Statistical Summary

                 Stock      Dividend         Payout      # Increases  
                Yield      Growth Rate     Ratio       Since 2008

PM           3.4%            7%              57%              5*
Ind Ave    4.2               9           54            NA

                Debt/                         EPS Down       Net        Value Line
                Equity         ROE      Since 2008      Margin       Rating

PM           124%           167%            1*             12%          B++
Ind Ave     61              48                  NA            17           NA

*the company has only reported separately for five years

    Chart

      Note: PM stock made great progress off its March 2009 low, quickly surpassing the downtrend off its September 2008 high (red line) and the November 2008 trading high (green line).  Both the long term and intermediate term trends are flat (straight blue lines).  The wiggly blue line is on balance volume.  The Dividend Growth and High Yield Portfolios own full positions in PM.  The upper boundary of its Buy Value Range is $87; the lower boundary of its Sell Half Range is $114.

http://finance.yahoo.com/q?s=PM
11/13