Philip Morris International Inc (PM, Financial) has experienced a loss of -2.35% in its stock value on September 26, 2023, and a 3-month loss of -4.07%. With an Earnings Per Share (EPS) of 5.17, there is a pressing question: Is Philip Morris International's (PM) stock modestly undervalued? In this article, we delve into a valuation analysis to answer this question. Keep reading to get an in-depth understanding of Philip Morris International's intrinsic value.
A Snapshot of Philip Morris International Inc (PM, Financial)
Philip Morris International is a globally recognized tobacco company, with a product portfolio primarily made up of cigarettes and reduced-risk products. These include heat-not-burn, vapor, and oral nicotine products, which are marketed outside the United States. In recent years, the company has diversified its portfolio with acquisitions like Swedish Match and Vectura. The former is a leading manufacturer of traditional oral tobacco products primarily in the U.S. and Scandinavia, while the latter provides innovative inhaled drug delivery solutions. The company operates in six geographical segments: the European Union; Eastern Europe; Middle East and Africa; South and Southeast Asia; East Asia and Australia; and Americas.
Here is the income breakdown of Philip Morris International:
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is derived from three key factors: historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value that the stock should ideally trade at.
Philip Morris International (PM, Financial) stock is believed to be modestly undervalued based on the GuruFocus Value calculation. At its current price of $91.52 per share, Philip Morris International has a market cap of $142.10 billion, and the stock is believed to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength of Philip Morris International
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to carefully review a company's financial strength before deciding to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Philip Morris International has a cash-to-debt ratio of 0.07, which ranks worse than 86.79% of 53 companies in the Tobacco Products industry. Based on this, GuruFocus ranks Philip Morris International's financial strength as 4 out of 10, suggesting a poor balance sheet.
This is the debt and cash of Philip Morris International over the past years:
Profitability and Growth of Philip Morris International
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Philip Morris International has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $33.20 billion and Earnings Per Share (EPS) of $5.17. Its operating margin of 33.6% is better than 84.62% of 52 companies in the Tobacco Products industry. Overall, GuruFocus ranks Philip Morris International's profitability as strong.
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Philip Morris International's 3-year average revenue growth rate is worse than 76.19% of 42 companies in the Tobacco Products industry. Philip Morris International's 3-year average EBITDA growth rate is 5.4%, which ranks worse than 57.14% of 42 companies in the Tobacco Products industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Philip Morris International's ROIC is 21.5 while its WACC came in at 7.01.
The historical ROIC vs WACC comparison of Philip Morris International is shown below: 
Conclusion
In summary, the stock of Philip Morris International Inc (PM, Financial) is believed to be modestly undervalued. The company's financial condition is poor and its profitability is strong. Its growth ranks worse than 57.14% of 42 companies in the Tobacco Products industry. To learn more about Philip Morris International stock, you can check out its 30-Year Financials here.
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