Philip Morris International is the leading international tobacco company excluding the Chinese and US markets, led by the Marlboro brand which is still the king of tobacco worldwide.
Not resting on their laurels, Philip Morris International has had major success with its iQOS reduced risk heated tobacco product, with sales growing over 10x year over year.
Dividend has more than doubled over the past 9 years since the IPO, and management consistently returns over 90% of cash flow to shareholders.
Philip Morris International is fairly valued at this point in time. Wait for a 5%-10% pullback for a decent entry point.
Philip Morris International (NYSE:PM) is a world leading international tobacco company. You might remember that PM was spun off by Altria Group (NYSE:MO) back in March 2008, and since then the shares are up by more than 163% including dividends. As such, PM owns the international rights to the Marlboro brand outside the US, among many other top brands. How fitting that PM, the spin off (or child) of the parent company, King MO, is the king of tobacco outside the US. Talk about a parent being proud of their child! Excluding the protectionist Chinese market, and the US market, PM has the highest market share of cigarette and heated tobacco products in the world at about 28%. I will talk about PM’s competitive advantages that have brought it success up to this point, as well as innovative steps that PM is taking in order to stay on top.
Philip Morris International’s Competitive Advantages
- Brand Recognition:
The Marlboro brand is a behemoth for PM as it’s the number one leading brand for PM in virtually every market. Although PM does not advertise anymore, the Marlboro brand has a large share of mind even among non-smokers. Call it genius or luck, the marketing of the Marlboro brand worked wonders with smokers so much so, that even without any advertising, the brand continues to dominate.
- Low Capital Expenditures:
Earnings mean nothing if the business requires a lot of cash to maintain their operations. Take oil companies as an example, they earn billions of dollars per year only to pour more than half of it back into the business to maintain/improve operations. Those expenditures really reduce the amount of cash a business has to distribute back to shareholders. According to Q1 2017 earnings, PM only spends 12% of their operating cash flow to maintain their operations.