Philip Morris’s Valuation versus Altria Group
Valuation multiples help investors compare companies with similar business models. We’ve opted for the forward PE (price-to-earnings) multiple due to the high visibility in Philip Morris International’s (PM) earnings. Forward PE multiples are calculated by diving the company’s current stock price by analysts’ earnings estimates for the next four quarters.
Interested in PM? Don't miss the next report.
Receive e-mail alerts for new research on PM
Philip Morris’s forward PE
The increase in shipment volume and favorable price variance helped Philip Morris outperform analysts’ revenue estimates, which led to a rise in its stock price. However, its forward PE multiple remained unchanged, as analysts also raised their EPS estimates for the next four quarters. Before 4Q17, analysts were expecting the company to post EPS of $5.34 in 2018, which they have now increased to $5.37. As of February 8, the company was trading at 18.6x. On the same day, its peer Altria Group (MO) was trading at a forward PE multiple of 16.1x.
From the above graph, we can see that Philip Morris is trading above Altria’s valuation multiple. On July 28, 2017, the FDA had announced that it plans to reduce nicotine in US cigarettes to non-addictive levels. As Philip Morris markets its products outside of the United States, its stock price wasn’t significantly affected by the announcement, trading above Altria’s valuation multiple.
For the next four quarters, analysts expect Philip Morris’s EPS to rise 14.3%, which could have been factored into the company’s current stock price. If the company posts earnings lower than analysts’ estimates, the selling pressure could bring the company’s stock price and valuation multiples down.
Next in this series, we’ll look at analysts’ recommendations for Philip Morris.