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Philip Morris International Inc PM

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Lifting Our Valuation of Philip Morris International on Margin Expansion

Analyst Note

| Philip Gorham, CFA, FRM |

We have thought for years that the cigarette portfolio alone, which skews to the premium segment and contains Marlboro, the world's largest cigarette brand, made Philip Morris International, or PMI, the quality pick of the tobacco group. It is now clear the success of the firm's reduced risk products, or RRPs, has given PMI even stronger competitive advantages. We are raising our fair value estimate to $108 per share from $98, driven by the assumptions of medium-term margin expansion and faster near-term revenue growth, following an update from management at the company's investor day. We remain constructive on PMI's shares, which trade at just 13.5 times our estimate of 2022 earnings and offer a 6% forward dividend yield. We see less upside than for other tobacco firms, particularly Imperial Brands, but we see clearer catalysts to unlocking the upside with PMI.

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Company Profile

Business Description

Philip Morris International is a leading international tobacco company engaged in the manufacture and sale of cigarettes and other nicotine-containing products in markets outside the United States. Through multidisciplinary capabilities in product development, state-of-the-art facilities, and scientific substantiation, the company aims to ensure that its smoke-free products meet adult consumer preferences and rigorous regulatory requirements. Management's vision is that these products ultimately replace cigarettes.

120 Park Avenue
New York, NY, 10017
T +1 917 663-2000
Sector Consumer Defensive
Industry Tobacco
Most Recent Earnings Dec 31, 2020
Fiscal Year End Dec 31, 2021
Stock Type High Yield
Employees 71,000