Philip Morris International Inc.NYSE:PM) the stock has remained close to the $90 support zone that I updated on my site previous article in September. However, a momentary fear at the end of October saw no technical sell-off after the week of the company’s third quarter or Release of FQ3 earnings.
However, buyers came back with conviction, triggering a further decline below that zone, helping PM avoid falling into a potentially debilitating long-term bias.
With that in mind, I believe it is appropriate to help Philip Morris investors assess whether current levels remain a buying opportunity, even though PM has significantly underperformed the S&P 500 (SPX) (SPY) during the past year.
Despite this, I found that PM’s 1Y total return of nearly 2% isn’t too bad, suggesting that its performance is still in line with arch-rival Altria Group (MO). PM also boasts an attractive “B” rating (assigned by Seeking Alpha Quant), lending confidence to value investors looking to add exposure.
Despite the Prime Minister’s appeal, the market remains tentative for a sharp reassessment of the PM. Why? The legacy tobacco market remains in secular decline, although Philip Morris is expected to continue to transform its revenue base into reduced-risk products.
Accordingly, Philip Morris posted an outstanding performance from IOQS and ZYN. ZYN delivered “tremendous growth with US volumes up 66% in the third quarter.” Additionally, the company posted a 36% revenue contribution from smokeless products in the third quarter. Additionally, its fuels category posted a 6% increase in organic net revenue, demonstrating its strong leveraged pricing to mitigate anticipated future volume declines.
Additionally, Philip Morris is also well positioned in its US IOQS commercialization roadmap, as the company “determined to win full rights to commercialize all IQOS products in the United States as of April 30, 2024.” Given the highly profitable success of IOQS globally, Philip Morris is expected to invest and gain leadership in the US, helping to drive growth her further.
As a result of its strong third quarter performance, the company raised its adjusted EPS guidance range for FY23, although it was still below consensus estimates. I believe caution is warranted, as we must consider the impact of Forex volatility. Despite this, Philip Morris is expected to remain a market leader in the smoke-free transition, given its global portfolio in over 180 markets.
Despite this, some concerns can be attributed to the relatively weak earnings revision rate (assigned “D+” by Seeking Alpha Quant), which may dampen confidence in its ability to sustain earnings outperformance. As discussed earlier, the company’s adjusted adjusted EPS range of $6.05 to $6.08 is still below analysts’ estimates of $6.11.
Despite the caution, PM’s current “B” grade validates improved buy sentiment, supporting my thesis that value and income investors are willing to defend the $90 area.
The PM price chart shows that strong support was seen at the $90 level in its October selloff. Therefore, I estimated that the sellers did not have enough momentum to force a further sell-off towards the September 2022 PM lows ($80 level).
Regardless, the Prime remains largely in a consolidation zone, suggesting investors who decide to add now should remain patient. However, the risk/reward is considered attractive, although caution should be exercised closer to the $100 level.
Rating: Save the purchase.
Important note: Investors are reminded to do their due diligence and not to rely on the information provided as financial advice. Please always apply independent judgment and note that assessment is not intended to assign a specific entry/exit to the writing point, unless otherwise specified.
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