Philip Morris International Inc. (PM), British American Tobacco PLC (ADR) (BTI): More Headwinds for This Tobacco Master

Tobacco industry’s major players

Recently, British American Tobacco PLC (ADR) (NYSEMKT:BTI) completed a joint venture with I.M.U Enterprise in Myanmar that would enable it to manufacture, distribute and market its products in the local market. The company has plans to invest $50 million in the project during the next five years. According to British American Tobacco PLC (ADR) (NYSEMKT:BTI), this project would help the company in regaining a significant market share in the country.

British American Tobacco PLC (ADR) (NYSEMKT:BTI) is trading at a forward Price/Earnings (P/E) ratio of 14.40 and yields a high dividend of 5.40%. It has a Price/Earnings to Growth (PEG) rate of 1.71 and a Price Earnings to Growth for the Year (PEGY) of 1.1, making it one of the most undervalued stocks in its industry. A mean recommendation of 2 on the sell side reflects that it’s one of the better buys in the tobacco industry.

On the other hand, the American holding company, Vector Group Ltd (NYSE:VGR) reported a 7% decline in its revenues during the first quarter, 2013. One of the main reasons behind this low revenue was a 10% decline in company’s unit sales. However, its operating income increased 23% to $43.1 million. One of the hallmarks of Vector Group Ltd (NYSE:VGR) is its super high dividend yield of 9.70%. Further, its cash per share ($4.83) is almost three times its current annual dividend, depicting its strong liquidity. Therefore, it’s a great buy for dividends.

Conclusion

Philip Morris International Inc. (NYSE:PM) will be successful in increasing its volume across Africa, South Asia and Latin America. However, with the U.S. dollar going strong, Philip Morris won’t be able to mint substantial incomes during the second half of 2013. In addition, weak economic conditions in Europe and China would further weaken its growth prospects. In short, I remain neutral on Philip Morris International.

The article More Headwinds for This Tobacco Master originally appeared on Fool.com and is written by Waqar Saif.

Waqar Saif has no position in any stocks mentioned. The Motley Fool owns shares of  Philip Morris International. Waqar is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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