Due to Philip Morris International’s potential with future products adding up to the forex strength and an apparent growth in the company’s earnings, global investment banking giant Goldman Sachs has given the cigarette and tobacco company a buy rating from a neutral.
Aside from the buy rating, Philip Morris also was added to the brokerage’s Conviction Buy List due to the company’s positive prospects. Some of these include the fast gain in their earnings per share momentum plus an increase of 10% this 2017 and another 11% by 2020 according to Goldman Sachs analyst Judy Hong.
A swift dividend increase is also expected in the stock following the list of positive prospects along with the company’s growing future capital allocation.
PM Stocks soared by 3.18% following Monday’s close of the pre-market trading rising by 1.75% compared to last Friday’s trading session dropping 3.73% opening at 100.64 closing at 97.64.
Promising PM Dividends and Positive iQOS device reception
According to Hong from Goldman Sachs, the rating comes with an expectation that Philip Morris dividends will rise in the middle of this month following an outlook in their future products which will likely increase their gains overall.
Philip Morris is expected to develop and market tobacco products with reducing risks as the company is seen to still be a part of the future in the industry of tobacco. For PM to keep up with the decrease in the cigarette’s hype with the ever growing presence of alternatives like vape or e-cigarettes, the company has exerted a huge amount of effort in making their iQOS heat-not-burn technology being known to the market.
The product, which promotes heated nicotine infused vapor instead of smoke from burning the cigarette is claimed by the company to have lesser risks.
Although Philip Morris experienced a decline in sales and revenue reflected in their second quarter a negative decline in revenue by 3.1% with their earnings plunging to a 5% drop and worldwide cigarette shipments falling by 4.8%, the demand increased for their iQOS device rose which accounts for the public’s positive feedback on their tobacco future products.
The device was received positively especially in countries like Japan, Lisbon, Italy, Moscow, and Switzerland. The IQOS already holds 2.7% of the PMI shares in Japan where almost 70% of its users have fully switched to using the product. 68-70% of the said product’s users in Italy and Switzerland have reportedly also switched to using the device from traditional smoking.
Analysts have now stated that despite iQOS not being able to make up some chunk of the company’s revenue, the product itself offers a promising alternative with prospects on replacing traditional cigarettes in the future with the non-combustible feature.
PMI remains to be a company with a steady profit flow despite its gamble with the new tobacco products and the chances on the downward trend of the traditional cigarette consumption. Just last year, the company was able to generate an operating cash flow amounting to $7.8 billion with only $960 million being spent on capital expenditures leading to a $6.9 billion cash flow.
Bonnie Herzog, a senior analyst from Wells Fargo has stated that they are expecting a divided increase of 5% from the tobacco and cigarette company following the reduction of the risks in PM’s products, a strong profit or capital strength and an attractive dividend yield. Despite added revenue of $344 million in just a quarter, Philip Morris also managed to cut some costs through cancelation of share buybacks.
Despite poor second quarter growth of only 1.5%, Philip Morris’ stock is still profitable at 8.8% and a dividend yield of 4.01%. The stock also continues to gain on the positive feedback on their iQOS devices which are also their contingency plan when the decline in the demand for traditional cigarette continues to dip lower. The company’s issue regarding the impact of the currency also has now been toned down thanks to their guidance which has been improved to absorb the effects of the dollar strength. This will allow Philip Morris to continue experiencing gains in their stock and cash flow as well.
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