Philip Morris International Inc. (NYSE:PM) shares are fairly priced after the current drop in stock price following the earnings miss in the first quarter. Though CFRA lifted its price target by $7 on the stock to $110 it only indicated the current trading price. However, the brokerage maintained its Hold rating on the stock.
Analyst Agnese defended his price objective by applying a PE of 22.3X, which is five percent more than Philip Morris’s three-year average, his EPS estimate of $4.92 for 2017. Incidentally, the analyst lifted his EPS estimate from $4.78 to $4.92 for the same period reflecting a narrower unfavorable forex impact, as well as, lower tax rate.
In a research note to clients, the analyst viewed, “We see valuation supported by industry consolidation and new product growth. We increase our ’18 EPS estimate by $0.20 to $5.40. Q1 adjusted EPS of $0.98 vs. $0.98 is $0.11 below our estimate, as total cigarette shipment volumes fell 12%, more than we expected.”
However, the brokerage pointed that demand for “heated tobacco” grew significantly as the analyst expects a strong consumer adoption rates for remainder of the current year and beyond.
Philips Morris suffered gross margin compression of 20 basis points to 23.5 percent as the company sees unit volume of cigarette and heated tobacco to drop between 3 and 4 percent in 2017.
At time of writing this, the stock fell 3.44 percent.