Philip Morris International Earnings: Combustibles Perform Strongly

Philip Morris International, or PMI, reported second-quarter results that were modestly above our expectations, due to robust volume in the core combustible segment. On top of low-double-digit organic net revenue growth, subsidiary Swedish Match made a significant contribution to reported year-over-year revenue growth of 1.5%. We are retaining our $103 fair value estimate and wide moat rating. PMI is trading close to this valuation, and we believe a more attractive risk/return profile exists in some of the slightly-lower-quality tobacco companies such as Imperial Brands and British American Tobacco, but these results again confirm that PMI’s valuation premium to peers is justified, and PMI may prove to be more defensive than most in the event of global macroeconomic deterioration.