Making the Most of Philip Morris

Philip Morris International's (PM) stock price declined about 4% Thursday after the company reported earnings below analyst expectations. Philip Morris operates internationally after having split from Altria Group (MO), which handles U.S. sales of the old Philip Morris cigarette brands. Revenue at Philip Morris was down in the third quarter, partly due to currency effects and partly due to economic weakness in Europe, among other factors (the company actually raised prices, with the lower revenue resulting from lower sales volumes). Earnings were off slightly, with earnings per share falling to $1.32 compared with $1.35 in the same period in 2011.

Philip Morris' cash flows are large and the company is committed to returning some of this cash to shareholders. It has approved an $18 billion repurchasing program, and, like many other cigarette companies, pays a large dividend yield, 3.7% in this case. Adjusting for the replacement of the third-quarter 2011's earnings in the trailing numbers, Philip Morris trades at 18x trailing earnings. The forward PE ratio is only 15, but reflects the fact that Wall Street analysts expect the company to perform more strongly next year-- even though it has seen lower earnings in both the third and second quarters of 2012 than in the comparable periods last year. Philip Morris would be helped to some degree by more favorable currency movements, but it's probably better not to count on that....351 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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