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Philip Morris International (NYSE:PM) is a great company with solid past financial performances and dominating global market share of 28.8% (excluding China and the U.S). I am bullish on PM and believe it offers investors a good investment opportunity due to following reasons:
- lower PEG of 1.4 as compared to its competitors.
- enjoys geographical diversification.
- ongoing cost control efforts and margins expansion in recent quarter.
- has a solid dividend history and
- analysts are expecting attractive next five years growth rate of 11%.

Financial Performance
PM reported strong financial results for the fiscal year 2012 and 4Q'12 recently. The company was able to grow its revenue and earnings at an impressive rate as discussed below and also experienced margins expansion.

Full-Year 2012
PM posted strong financial results for fiscal year 2012, as it was able to grow its adjusted earnings per share to $5.22, up 7% YoY and net revenues by 1% YoY to $31.4 billion in fiscal year 2012. It was also able to increase its shipment volume by 1.3% YoY in 2012 and grew its global market share to record level of 28.8%.

In the last year, 2012, PM exceeded its cost saving and productivity target of $300 million and is expecting to save the same amount in 2013 under its ongoing cost control efforts.

Fourth Quarter
PM reported net revenues of $7.9 billion, up 2.9% YoY. Along with a decent revenue growth, the company grew its adjusted EPS at an impressive rate of 12.7% YoY to $1.24. Growth in EEMA (Eastern Europe, Middle East and Africa) segment was among the key drivers for the growth in top and bottom lines of PM in a recent quarter, as revenue for the segment increased by 11.3%. Also, despite the sluggish consumer spending environment, cigarette volumes were up 2.9% YoY. The following table shows revenues and shipment volume growth for 4Q'12 of different reporting segments.

4Q'12 Revenue Growth (Excluding FX impact)

4Q'12 Shipment Volume Growth

European Union

(0.5%)

(5.7%)

EEMA

11.3%

7.1%

Asia

8.1%

5.7%

Latin America & Canada

7.3

(1.1%)

Source: Earnings Release

Due to slow cigarette volume growth in the tobacco industry, PM has been working on improving its productivity and cost structure in efforts to grow its bottom line. These ongoing efforts seem to be delivering results as PM experienced margins expansion in 4Q'12 as shown in the table below.

4Q'11

4Q'12

Gross Margin

65%

66%

Operating Margin

39%

42%

Net Margin

24%

26%

Source: Earnings Release

Dividend and Share repurchase
Other than an impressive earnings growth rate, PM has been sharing its successes with its shareholders in the shape of dividends and share repurchases. Since its spinoff five years ago, dividends increased by 85% from their initial level of $1.84 per share in 2008 to the current annualized rate of $3.40 per share. Currently the stock offers a safe dividend yield of 3.8%.

Moreover, PM has a small CAPEX requirement and generates strong cash flow which indicates dividends offered by the company are safe and sustainable. The following graphs show dividend increases, CAPEX as percentage of sales, and dividend and free cash flow comparison.

(click to enlarge)
Source: Ycharts

(In million of $)
(click to enlarge)
Source: Annual Reports

During 4Q'12, shares worth $2 billion were repurchased under a three-year share buyback program of $18 billion which was initiated in August last year. For the current year 2013, the company targets to buy back $6 billion worth of common stocks.

Guidance
PM is expecting full-year EPS range of $5.68 - $5.78 representing an increase of 10% - 12% YoY. Analysts are anticipating PM to earn $5.77 per share in 2013. Following are the three years analysts EPS estimates for PM.

2013

2014

2015

EPS Est.

$5.77

$6.38

7.18

Source: Nasdaq.com

Conclusion
PM has a diverse geographical revenue base with significant exposure to emerging markets which is expected to drive growth in the future. Analysts are expecting impressive 5-year growth rate of 11% per annum. Also, PM has a low PEG of 1.4 indicating the company offers cheap growth as compared to its peers. Furthermore, PM also has an attractive ROE of 450%, which I believe will increase in the future as shares outstanding will decrease due to ongoing share buyback program.

PM

Altria (NYSE:MO)

Reynolds American Inc. (NYSE:RAI)

British American Tobacco plc (NYSEMKT:BTI)

Lorillard, Inc. (NYSE:LO)

PEG

1.4

2

2.2

2.15

1.7

ROE

450%

94%

23%

42%

-

Dividend Yield

3.8%

5.1%

5.3%

4.1%

5.1%

Source: Yahoo Finance

Source: Philip Morris Has Lots To Offer For Its Shareholders