Philip Morris (NYSE: PM) recently reported its fourth-quarter results, with revenues slightly exceeding expectations but earnings falling short of street estimates. While the stock has experienced a 7% decline this year, we believe there is potential for growth ahead. The company reported revenue of $9.05 billion, slightly above the estimated $9.01 billion, but its adjusted earnings of $1.36 per share fell short of the consensus estimate of $1.45. In this blog, we will discuss Philip Morris' stock performance, key takeaways from its recent results, and its valuation.
The performance of PM stock has been relatively stagnant over the past three years, with it moving from around $85 in early 2021 to around $90 currently, compared to a 35% increase in the S&P 500. PM stock's performance has been volatile when compared to the index. The stock saw returns of 15% in 2021, 7% in 2022, and -7% in 2023. In contrast, the S&P 500 had returns of 27% in 2021, -19% in 2022, and 24% in 2023, indicating PM's underperformance in 2021 and 2023.
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Given the uncertain macroeconomic environment with high oil prices and elevated interest rates, investors wonder if PM will face similar underperformance in the next 12 months or experience a strong rebound. From a valuation perspective, PM stock appears to have room for growth. Our estimate places Philip Morris' valuation at $108 per share, suggesting a 20% upside from its current price. We arrived at this forecast by using a 16x price-to-earnings multiple for PM stock and expected earnings of $6.45 per share (adjusted) for the full year 2024. The 16x multiple aligns closely with the average value PM stock has had over the past three years.
In the fourth quarter of 2023, Philip Morris recorded revenue of $9.0 billion, marking an 11% year-over-year increase. The growth was driven by a 6% increase in Heated Tobacco Unit (HTU) shipment volume and a 10% increase in combustible tobacco pricing. However, the combined volume of cigarettes and HTUs saw a slight decline of 0.5%. The adjusted operating margin contracted 280 basis points year-over-year to 33.7%. On a per-share and adjusted basis, Q4 earnings of $1.36 showed a 12% rise compared to the previous year. Looking ahead, Philip Morris anticipates earnings in the range of $6.32 to $6.44 per share (adjusted) for 2024, slightly below the consensus estimate of $6.60.
There are positive developments for Philip Morris on the horizon. The company expects mid-teens growth in HTU volume for this year, an improvement from the mid-single-digit growth seen in Q4 2023. Additionally, its electronic cigarette brand, IQOS, has shown strong growth and has surpassed the revenue of its iconic Marlboro brand. Investors may view the current dip in PM stock as an opportunity for long-term gains, particularly since the stock is trading below its three-year average price-to-earnings multiple of approximately 16x.
While the potential for growth is present for PM stock, it is also beneficial to consider how Philip Morris' peers compare in significant metrics. For a comprehensive understanding of industry performance, you can find valuable peer comparisons at Peer Comparisons.
In conclusion, Philip Morris' recent earnings report showcased mixed results, with revenues slightly exceeding expectations while earnings fell short. Despite the stock's decline this year, there is room for growth based on its valuation. Philip Morris has positive developments to look forward to, such as anticipated growth in its HTU volume and the success of its IQOS brand. Investors may want to consider the current dip in PM stock as an opportunity for potential long-term gains.
