IQOS Helps Philip Morris Navigate Nicely In Q1

Philip Morris (NYSE: PM) lately reported its Q1 outcomes, with revenues and earnings above the road estimates. The corporate reported income of $8.8 billion and adjusted earnings of $1.50 per share, in comparison with the consensus estimates of $8.5 billion and $1.41, respectively. The income development was pushed by sturdy demand for its heated-tobacco enterprise. Though the corporate reported an upbeat Q1, we predict its inventory has little room for development. On this notice, we talk about Philip Morris’ inventory efficiency, key takeaways from its current outcomes, and valuation.

Firstly, allow us to have a look at its inventory efficiency in recent times. PM inventory has witnessed features of 20% from ranges of $85 in early January 2021 to round $100 now, vs. a rise of about 35% for the S&P 500 over this roughly three-year interval. Nonetheless, the rise in PM inventory has been removed from constant. Returns for the inventory have been 15% in 2021, 7% in 2022, and -7% in 2023. As compared, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that PM underperformed the S&P in 2021 and 2023.

Actually, persistently beating the S&P 500 — in good instances and unhealthy — has been tough over current years for particular person shares; for heavyweights within the Client Staples sector together with WMT, PG, and COST, and even for the megacap stars GOOG, TSLA, and MSFT. In distinction, the Trefis High Quality (HQ) Portfolio, with a set of 30 shares, has outperformed the S&P 500 every year over the identical interval. Why is that? As a bunch, HQ Portfolio shares offered higher returns with much less threat versus the benchmark index; much less of a roller-coaster journey, as evident in HQ Portfolio performance metrics.

Given the present unsure macroeconomic atmosphere with excessive oil costs and elevated rates of interest, may PM face the same scenario because it did in 2021 and 2023 and underperform the S&P over the subsequent 12 months — or will it see a robust soar? From a valuation perspective, PM inventory appears prefer it has little room for development. We estimate Philip Morris’ Valuation to be $107 per share, reflecting lower than 10% upside from its present ranges of round $100. Our forecast relies on a 17x P/E a number of for PM and anticipated earnings of $6.27 on a per-share and adjusted foundation for the total 12 months 2024. The 16x determine compares with the inventory’s 17x common P/E worth during the last three years.

Philip Morris’ income of $8.8 billion in Q1 was up 10% y-o-y. Heated Tobacco Unit (HTU) cargo quantity was up a strong 21%, oral merchandise quantity was up 36%, which greater than offset a 0.4% decline in cigarettes quantity. Complete consolidated quantity was up 3.6% in Q1. The corporate noticed its adjusted working margin develop by 90 bps y-o-y to 38.2%. The underside line of $1.50 on a per-share and adjusted foundation in Q1’24 mirrored a 9% y-o-y rise. Trying ahead, the corporate has lowered its earnings outlook to now be within the vary of $6.19 and $6.31 on a per-share and adjusted foundation in 2024, in comparison with its prior steering of $6.32 to $6.44. This may primarily be attributed to forex fluctuations.

General, Philip Morris navigated nicely in Q1, and it has some positives to stay up for. Firstly, the corporate expects its HTU quantity to rise within the mid-teens share this 12 months. Additionally, its digital cigarette — IQOS — has been rising strongly and has surpassed the Marlboro model when it comes to income. Actually, a robust world demand for IQOS helped the corporate offset the impression of a ban on flavored heated tobacco merchandise within the European Union in Q1. Nonetheless, a lot of the positives look like priced in for PM inventory, in our view. PM inventory is already buying and selling at 16x ahead earnings, aligning with its common P/E a number of during the last three years.

Whereas PM inventory appears prefer it has little room for development, it’s useful to see how Philip Morris’ Friends fare on metrics that matter. You’ll discover different worthwhile comparisons for firms throughout industries at Peer Comparisons.