2. Philip Morris International Inc. (NYSE:PM)
Russo’s Stake Value: $783,039,000
Percentage of Russo’s 13F Portfolio: 6.61%
Number of Hedge Fund Holders: 46
The second stock on our list of the 5 European stocks to buy according to Tom Russo’s hedge fund is Philip Morris International Inc. (NYSE:PM), which is a multinational Swiss-American tobacco and cigarette manufacturer. Philip Morris International Inc. (NYSE:PM) is headquartered in Lausanne, Switzerland, and was founded originally in 1847. It is one of the companies that make up Big Tobacco, along with tobacco giants like Altria Group, Inc. (NYSE:MO), British American Tobacco p.l.c. (NYSE:BTI), Imperial Brands PLC (OTC:IMBBY), and Japan Tobacco Inc. (OTC:JAPAY). The flagship brand under Philip Morris International Inc. (NYSE:PM) is Marlboro, which is a cigarette brand consumed worldwide. The company is a long-term sponsor of the Formula One team Scuderia Ferrari.
Philip Morris International Inc. (NYSE:PM) has a market capitalization of $149.75 billion. It is also traded as a S&P 100 and S&P 500 component.
Russo’s hedge fund owns 7.9 million shares in Philip Morris International Inc. (NYSE:PM), amounting to $783 million and making up 6.61% of Russo’s 13F portfolio.
At the end of the second quarter of 2021, 46 hedge funds in Insider Monkey’s database held stakes amounting to $5.97 billion in Philip Morris International Inc. (NYSE:PM), up from 48 in the previous quarter with stakes worth $5.49 billion.
The company reported last quarter’s earnings per share of $1.57 on July 20, beating analysts’ consensus estimates of $1.55 by $0.02. The actual revenue for Philip Morris International Inc. (NYSE:PM) was $7.59 billion, missing analysts’ estimates by $114.07 million.
On August 19, Deutsche Bank maintained a Buy rating on Philip Morris International Inc. (NYSE:PM), raising the price target to $111.32 from $96.08.
Out of the hedge funds tracked by Insider Monkey, London-based Fundsmith LLP is the leading shareholder in Philip Morris International Inc. (NYSE:PM), with over 19.3 million shares worth $1.91 billion.
Broyhill Asset Management, in its Q2 2021 investor letter, mentioned that Philip Morris International Inc. (NYSE:PM) shook off the prospects of a ban on menthol and a potential cap on nicotine. Here is what the fund said:
“Philip Morris (PM) shook off the prospects of a ban on menthol and a potential cap on nicotine and gained 23%. We shared our thoughts on these regulations during the quarter, which are available here.
‘PM Valuation. PM is up ~ 15% YTD and would have the most to gain under a nicotine cap. A cap would likely accelerate conversion to iQOS, which is 100% incremental for PM (PM also has zero exposure to combustible cigarettes in the U.S. and licenses its IQOS product for MO to distribute domestically). As such, the decline in PM was much more muted, with the stock hitting new 52 week highs a day after the Biden headline, driven by yesterday’s earnings release. It didn’t take long for investors to shift their attention back to fundamentals and the fundamentals here are best in class. In short, results beat estimates across the board (a recurring theme here), and management raised guidance for the full year (another recurring theme). IQOS continued to deliver impressive growth, recording continued market share gains on the heels of continued user acquisition growth, up 1.5M to 19.1M total users. Importantly, IQOS now represents nearly 30% of PM net revenues (management expects “smoke-free” products to represent more than half of their business by 2025, which should make the ESG folks happy), which is driving top-line growth and margin expansion. Hard to believe that they have created a product with higher margins than combustible cigarettes!! We expect PM operating margins to increase by 100bps – 200bps annually as IQOS continues to gain share. The stock trades at ~ 15x today or 2/3 of the market’s multiple for a business likely to generate $35B in cash flow – or 25% of the market cap – in just the next three years. Over the last decade, shares have traded at an average multiple of 18x and within a range of ~ 14x – 22x (+/-1 standard deviation). The stock yields 5.1% at the current price, and we expect management to resume share purchases in the back half of this year.’”
