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Philip Morris International Inc PM

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COVID-19 Impact Slightly Worse Than Expected but PMI Is Still the Quality Play in Tobacco

Analyst Note

| Philip Gorham, CFA, FRM |

Philip Morris International beat our first quarter earnings per share estimate by a penny, but its performance appears to have been supported by channel inventory movements that we expect to reverse throughout the rest of the year. In addition, management highlighted some potentially weak markets as a result of the COVID-19 outbreak that we had not fully accounted for, so we are lowering our 2020 estimates accordingly, which were already below guidance and S&P Capital IQ consensus, although this has no impact on our $102 fair value estimate. As things currently stand, we do not expect the pandemic to have material long-term implications for the business, but emerging markets may prove to be weaker than we had expected in the short term. We regard the stock as being undervalued, and the lack of visibility into short-term performance is presenting a buying opportunity. At around 13 times 2020 earnings, PMI has one of the highest valuations in the tobacco group, but it is the quality play with a strong portfolio in both cigarettes and heated tobacco.

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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 Mar 31, 2020
Fiscal Year End Dec 31, 2019
Stock Type High Yield
Employees 73,500