Philip Morris Hits 52-Week High On Growth Initiatives

Shares of Philip Morris International Inc. (NYSE:PM) hit a 52-week high of $116.37 yesterday, though it closed a tad lower at $116.22, probably due to optimistic earnings guidance for 2017. In fact, shares have been gaining momentum on a year-to-date basis.

This Zacks Rank #3 (Hold) stock has gained 27% year to date, outperforming the Zacks categorized Tobacco industry's rise of 17.2%. Notably, the industry is placed in top 37% of the Zacks Classified industries (94 out of 256). Further, the company boasts a long-term earnings growth rate of 10.9%, which boosts optimism.

Let’s Take a Deep Look

Phillip Morris commands a leading market position in the tobacco industry on the back of a solid brand portfolio. Further, the company is churning its portfolio and taking steps to develop smoke-free products called reduced risk products as customers are shifting away from tobacco products. The company also remains focused on the growing e-cigarette category and less harmful alternative tobacco products such as heatsticks and iQOS products. It expects these products to deliver growth in 2017.

Philip Morris has always managed to remain afloat and generate revenues with higher cigarette pricing in the face of unfavorable tax environment and declining cigarette volumes. Moreover, the price hikes helped the company to maintain margins at the desired level. Moving ahead, management continues to expect pricing to be the key growth driver.

Despite reporting weaker-than-expected results in first-quarter 2017, the company remains optimistic about its earnings guidance for 2017 owing to a favorable tax item of 4 cents per share. Currently, it expects 2017 earnings in the band of $4.84–$4.99 per share compared with the earlier guidance of $4.80–$4.95, forecasted in Feb 2017. Notably, this guided range is also higher than the adjusted earnings of $4.48 delivered in 2016. Moreover, the Zacks Consensus Estimate for 2017 is pegged within the guided range at $4.88.

Further, the company expects revenue growth, excluding excise taxes, to be more than its present target growth in the range 4–6%, annually. However, Philip Morris anticipates a combined cigarette and heated tobacco unit volume decline of 3% to 4% for the full year. We note that the company is struggling with declining cigarette volumes due to reduced demand of cigarettes, higher taxes, anti-tobacco campaigns and illicit trade of cigarettes. Strict government regulations and currency headwinds are pressurizing the company as well.

Despite the headwinds, we believe the company’s strong pricing power and focus on accelerating iQOS volume growth will help deliver upbeat results in 2017. Notably, the Zacks Consensus Estimate of $1.23 for the second quarter has increased by a penny over the last seven days.

Stocks that Warrant a Look

Better-ranked stocks in the broader Consumer Staples sector include SunOpta Inc. (NASDAQ:STKL) , Aramark (NYSE:ARMK) and Lamb Weston Holdings, Inc. (NYSE:LW) .

SunOpta, with a long-term earnings growth rate of 15% has skyrocketed 189% in the past one year. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aramark carries a Zacks Rank #2 (Buy) and has a long-term earnings growth rate of 12.8%.

Lamb Weston, a Zacks Rank #2 stock has surged 47% in the past year. Also, it has a long-term earnings growth rate of 4.2%.

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