Philip Morris Down to Strong Sell - Analyst Blog


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On Feb 20, 2014, Zacks Investment Research downgraded Philip Morris International Inc. ( PM ) to a Zacks Rank #5 (Strong Sell) owing to the cautious outlook for 2014.

Why the Downgrade?

Philip Morris witnessed sharp downward estimate revisions after reporting lower-than-expected fourth-quarter 2013 results on Feb 06, 2014

Although the Marlboro owner reported earnings of $1.37 per share, in line with the Zacks Consensus Estimate and higher than year ago earnings by 10.5%, revenues missed the prior-year results due to higher unfavorable foreign exchange impact. Net revenue went down by 1.3% to $7.8 billion. However, it beat the Zacks Consensus Estimate of $7.7 billion by 1.3%. Excluding the impact of an unfavorable currency translation, net revenue increased roughly 2.5% from the prior-year quarter, mainly driven by favorable pricing.

Moreover, gross profit declined 0.4% from the prior-year quarter to $5.2 billion, mainly due to higher excise tax during the quarter. Operating income slipped 1.1% year over year to $3.2 billion due to higher marketing, administration and research costs.

Anticipating stronger currency headwind in the upcoming year, Philip Morris expects currency impact to be 71 cents per share for fiscal 2014 more than double the 34 cents experienced in fiscal 2013.

Almost all the estimates were revised downward following the cautious outlook of the company. The Zacks Consensus Estimate for first-quarter 2014 slipped 8.7% to $1.16 per share over the last 30 days. For 2014, the Zacks Consensus Estimate slipped 7.4% to $5.11 per share during the same timeframe.

Moreover, the company is facing difficult industrial conditions due to declining demand resulting from the ongoing anti-tobacco campaigns. Governments around the world are hiking excise tax on cigarettes and imposing packaging and advertising restrictions on cigarette makers.

In Nov 2013, Philip Morris announced that it is going to foray into the e-cigarette category. However, probable ban on e-cigarettes by the European government are a concern.

Other Stocks to Consider

Some better-ranked stocks in the consumer staples sector worth considering include Post Holdings, Inc. ( POST ), Diamond Foods Inc. ( DMND ) and The Hain Celestial Group Inc. ( HAIN ). All these stocks carry a Zacks Rank #2 (Buy).

DIAMOND FOODS (DMND): Free Stock Analysis Report

HAIN CELESTIAL (HAIN): Free Stock Analysis Report

PHILIP MORRIS (PM): Free Stock Analysis Report

POST HOLDINGS (POST): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: DMND , HAIN , PM , POST

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