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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Philip Morris

June 23rd 2010 Philip Morris
NYSE Symbol: PM
Industry: Tobacco
Price as of 6/23: $46.49


The second quarter is winding down and the averages have gone no where. We're basically unchanged for the year after being up over 7% for the year back in April. The July earnings should be really good once again, but investors are nervous about guidance regarding the third quarter and possible slowdown due in part to the problems in Europe and the end to the housing tax credit. In times of uncertainty it's always nice to fall back on blue chip dividend paying stocks. That's why this week we feature the International tobacco maker, Philip Morris. Made popular by brands such as Marlboro, Philip Morris has pulled back recently due to the weakness in the Euro. Just this week, Philip Morris lowered earnings guidance due to the currency fluctuations, yet the stock rallied 4% as investors feared larger cuts in earnings estimates. At its current price Philip Morris is yielding 5% and typically raises the dividend in the third quarter as they did last year. Unfortunately, the stock just went ex-dividend this week, but investors looking for a stable company in these volatile times may want to take a look at Philip Morris.
Back in April, Philip Morris International posted net earnings of $1.703 billion in the first quarter, compared with $1.476 billion the previous year. Earnings were 90 cents a share, up by 21.6% versus 74 cents in 2009, but missed the 93 cents a share estimate. This was the first time Philip Morris missed estimates since being spun off from Altria in early 2008. Net revenue rose an impressive 17% to $15.587 billion. Philip Morris International said its organic volume declined by 2.3% during the quarter which actually beat estimates of a negative 3% growth. During the quarter, Philip Morris International repurchased 36.1 million shares of its common stock for $1.8 billion. For the full year, Philip Morris reaffirmed in-line guidance for 2010, with estimates of $3.75-3.85 verse concensus of $3.84. This week, as mentioned, Philip Morris lower their full year guidance due ino part to the currency flucuations. Philip Morris International now sees net income of $3.70 to $3.80 per share for the year. Its previous forecast was for net income of $3.75 to $3.85 per share.
Despite the weak Euro, Philip Morris did highlight improving business particularly in Japan, and a benefit from the reversal of some tax provisions.
Even with the lowered guidance, Philip Morris remains cheap. The stock is trading for 12 times earnings, 11 times next years estimates, and 3 times book value. As mentioned the stock provides a 5% yeild, but unfortunately will not go ex again for three months. The capital appreciation may be limited with Philip Morris, but investors looking for a blue chip dividend paying stock may want to look at Philip Morris.