Philip Morris International (PMI)
, the world’s largest publicly traded cigarette company, reaps the rewards of making an addictive product. Philip Morris constitutes the international operations of Altria (MO), from which it was spun off in 2008.
Standard & Poor’s analyst Esther Kwon, who has a four-star buy rating on Philip Morris stock, says the spinoff from Altria continues to bear fruit for the company.
“Separated from operations in the U.S. and the regulatory and litigation risk of that market, PM will be better positioned to innovate, tailor offerings to higher-growth emerging markets, and achieve cost savings,” she writes.
While regulatory restrictions and health campaigns have curbed cigarette consumption in developed nations, Philip Morris can limit revenue losses there with higher prices. More importantly, smoking continues unabated in emerging markets and the population continues to grow there.
Despite the anti-smoking movement, the number of smokers will increase to 1.4 billion around the world in 2020 from 1.3 billion today, Morningstar estimates.
Philip Morris owns seven of the leading 15 international cigarette brands, including world No. 1 seller Marlboro, No. 4 L&M, Virginia Slims, and Parliament.
Strength in emerging markets
The company’s net income rose 13 percent in the first quarter to $1.92 billion from $1.7 billion a year earlier. Sales rose 4.5 percent to $6.8 billion, excluding excise taxes. Sales volume growth of 14 percent in Asia helped power the gains, with particular strength in Korea, Indonesia, and Thailand.
S&P’s Kwan sees Philip Morris continuing its strong performance. “For 2011, we expect revenues to climb 11 percent on higher pricing and foreign exchange, after a nearly 9 percent rise in 2010,” she writes.
Kwan expects the company’s greatest strength to come in emerging markets. “We think PM's low penetration of markets with potentially high cigarette consumption, such as China, India and Vietnam, also provides attractive opportunities.”
She sees potential for strong sales growth in Indonesia, Korea, and Russia too.
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