What's in Store for Philip Morris (PM) in Q4 Earnings?

Philip Morris International Inc.PM is slated to release fourth-quarter and full-year 2016 results before the opening bell on Feb 2, 2017. Increased competition in the vapor category, declining volumes, strict anti-smoking regulations by governments globally and currency headwinds are the main factors weighing upon the tobacco sector. Philip Morris is no exception to these trends of the industry.

After reporting negative surprises for the first two quarters of 2016, Philip Morris rebounded by reporting a beat of 1.63% in the third quarter. However, the company has reported an average negative surprise of 3.76% in the trailing four quarters. Nevertheless, investors are eagerly awaiting the company's fourth-quarter numbers.

Factors at Play

We note that Philip Morris has been experiencing lower volumes for the past few quarters, primarily due to the general shift of consumption away from tobacco products. The trend is expected to continue in the fourth quarter as well.

The company's shares have declined 0.1% in the past three months, underperforming the Zacks categorized Tobacco industry which has witnessed an increase of 5.0%.

However, Philip Morris is focusing on less harmful tobacco products in order to cater to growing demand for low-risk, smokeless tobacco products. The company has considerable presence in the unconventional tobacco products category and several of its potentially less harmful products have gained popularity in the market.

Philip Morris International Inc Price and EPS Surprise

Philip Morris International Inc Price and EPS Surprise | Philip Morris International Inc Quote

In this regard, Philip Morris launched a set of Next Generation Products (NGPs) in early 2015 to attract adult consumers while reducing the risks related to tobacco products. Further, the company has enhanced investment in research and development for the category in 2016. These initiatives are expected to bode well in the yet-to-be-reported quarter. Moreover, in Dec 7, 2016, it filed an application with the US Food and Drug Administration (FDA) for its IQOS products (Heatsticks that heat tobacco instead of burning it). Once the Modified Risk Tobacco Product (MRTP) claim is approved by FDA, the company will be able to enjoy a significant marketing advantage over other reduced risk tobacco products that are being sold currently.

Earnings Whispers

Our proven model does not conclusively show that Philip Morris is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP : The Earnings ESP for Philip Morris is 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at $1.11. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank : Philip Morris currently carries a Zacks Rank #3 (Hold). Although the company's Zacks Rank #3 increases the predictive power of ESP, its ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement especially when the company is seeing a negative estimate revisions.

Stocks to Consider

Here are some stocks that investors may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Campbell Soup Company CPB has an Earnings ESP of +1.15% and a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Coty Inc. COTY has an Earnings ESP of +5.6% and a Zacks Rank #3.

Sanderson Farms Inc. SAFM has an Earnings ESP of +4.48% and a Zacks Rank #3.

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Sanderson Farms, Inc. (SAFM): Free Stock Analysis Report

Campbell Soup Company (CPB): Free Stock Analysis Report

Philip Morris International Inc (PM): Free Stock Analysis Report

Coty Inc. (COTY): Free Stock Analysis Report

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

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

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