Philip Morris' (PM) stock has enjoyed a nice run over the last half a year, but investors may be getting ahead of themselves. The stock is overvalued based on its trailing valuation metrics and analysts are also in agreement. It is fairly valued relative to competitors as the market seems to be bidding up the tobacco group as a whole to great heights. A business such as the tobacco business hasn't experienced an explosive wave of industry change in the past year to deserve such a boost in multiples. Below is an in depth look at the valuation metrics and stock chart.
Valuation: Philip Morris' trailing 5 year valuation metrics suggest that the stock is overvalued as the metrics are above their respective 5 year averages. Philip Morris' current P/S ratio is 1.9 and it has averaged 1.6 over the past 5 years with a high of 1.9 and low of 1.1. Philip Morris' current P/E ratio is 18.1 and it has averaged 14.6 over the past 5 years with a high of 17.1 and low of 10.9.
Price Target: The consensus price target for the analysts who follow Philip Morris is $87. That is downside of -1% from today's stock price of $87.52 and suggests that the stock is overvalued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.
Forward Valuation: Philip Morris is currently trading at about $88 a share with analysts expecting EPS of $5.9 next year, an earnings increase of 11% y/y, for a forward P/E ratio of 14.8. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. British American Tobacco (BTI) is currently trading at about $102 a share, with analysts expecting EPS of $5.08 next year, an earnings decline of 17% y/y, for a forward P/E ratio of 20.1. Altria Group (MO) is currently trading at about $31 a share with analysts expecting EPS of $2.37 next year, an earnings increase of 8% y/y, for a forward P/E ratio of 12.9. Reynolds American (RAI) is currently trading at about $41 a share with analysts expecting EPS of $3.2 next year, an earnings increase of 8% y/y, for a forward P/E ratio of 12.9. The mean forward P/E of Philip Morris' competitors is 15.3 which suggests that Philip Morris is fairly valued relative to its publicly traded competitors.
Earnings Estimates: Philip Morris has beat EPS estimates every time in the past 4 quarters. The company's EPS figures have come in between 1 cents and 13 cents from consensus estimates or about 0.9% to 10.5% from analyst estimates. The company has reported earnings that have differed from analyst estimates by some margin which suggests that the stock may experience upside from earnings surprises.
Price Action: Philip Morris is up 35.4% over the past year, outperforming the S&P 500, which is up 10.1%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $80.48 and above its 200 day moving average, which sits at $71.42.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.