2. Philip Morris International Inc. (NYSE:PM)
Share Price as of June 6: $106.99
Number of Hedge Fund Holders: 55
Philip Morris International Inc. (NYSE:PM) is a tobacco company with a presence in over 180 countries. The most notable product in the corporation’s portfolio is Marlboro. The stock offers low volatility and is resistant to recessions. Philip Morris International Inc. (NYSE:PM) has a dividend yield of over 6% as of June 6.
As the number of smokers is on a declining trend across the globe, the New York-based company is making a strategic shift and preparing itself to move away from selling cigarettes in the majority of markets in the next 15 years. Philip Morris International Inc. (NYSE:PM) has invested $9.2 billion in IQOS heat sticks since 2014 to shift towards a smoke-free future. The investment in IQOS is paying off as it has become the second most popular nicotine brand around the world. Philip Morris International Inc. (NYSE:PM) has a forward P/E ratio of 17.54x as of June 6.
Here’s what Broyhill Asset Management said about Philip Morris International Inc. (NYSE:PM) in its Q2 2021 investor letter:
“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.’”
