Philip Morris International Inc. (NYSE:PM) is undergoing a massive transition away from cigarettes. The company is now launching products that give consumers the same taste but with reduced or no health risks. Philip Morris’ iQOS smoking system has been a huge success, with over 3.7 million consumers. The system works by heating tobacco instead of burning it. The electronic systems works on a lithium battery.
Philip Morris International Inc. (NYSE:PM) is focusing on new kinds of technologies to minimize health risks in its products. Its new segment “Reduced Risk Products” is adding up a significant amount of revenues.
In May, investment firm Pipe Jaffray started covering Phillip Morris stock with an “Overweight” rating. The firm is bullish on the new iQOS system, and thinks that the new tobacco heating device will help the company achieve 8%-9% average organic sales growth and 12%-13% annual EPS growth over the next three years. Piper Jaffray has a price target of $131 for the stock
But iQOS alone does not make Phillip Morris a stock worth owning. The company posted weaker-than-expected third quarter results. Revenue in the period increased by 7%, falling short of double digit growth analysts had expected. Earnings per share came in at $1.27, while the Street was expecting EPS of $1.35. One of the biggest problems Phillip Morris stems from declining cigarette shipments. In the third quarter, cigarette shipment volumes declined 7.5%. Phillip Morris also cut its full year earnings guidance to $4.78-$4.93 per share from $4.84-$4.99. The company also expects its full year total shipment volume to decline approximately 3%. Philip Morris International Inc. (NYSE:PM) most famous cigarette brand, Marlboro, experienced a 6% drop in volume during the quarter.
Philip Morris International Inc. (NYSE:PM) sales are suffering heavily in the US and Europe. Asia remains the biggest growth market for the company. Earlier this year, internal documents revealed that Phillip Morris sees India as the next big growth market. Phillip Morris sales in Europe will nosedive in the future as the region is growing highly aware of the health risks of smoking. The company is also under pressure in Europe due to the strict Tobacco Products Directive.
The only reason to buy Philip Morris International Inc. (NYSE:PM) stock is its extremely attractive dividend yield (4%). But a deeper analysis shows that the dividend might be in danger in the near future, as Phillip Morris’ payout ratio (which show the sustainability of a company’s dividend payments) is swiftly increasing. Philip Morris International Inc. (NYSE:PM) debt is also burgeoning.