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Consumer Staples Stocks With Emerging Market Exposure (Part I)

|Includes: Philip Morris International Inc. (PM)

* really old post from 2011..

The global economy is undergoing rebalancing. Emerging markets are surging ahead, taking on more consumption and driving global growth. In the meantime, with US consumers still suffering from debt overhang, US economic recovery could be on shaky grounds for the next couple years. As a result, many investors are inclined to play defense. Fortunately, one can play defense and enjoy growth at the same time, by investing in consumer staple stocks with strong emerging market exposures. This series of articles will explore such US companies, all trading at reasonable prices.

Philip Morris International, Inc. (NYSE:PM)

Philip Morris International Inc., (NYSE:PM) engages in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States. Its international product brand lines include Marlboro, Merit, Parliament, Virginia Slims, among others. PM is a very well run, profitable company with CROCI consistently around 30%-40%. It is also conservatively levered, with debt making up only about 11.5% of enterprise value. Indeed, its 5 year bonds (due march 2016) now yields a mere 3.5%, signaling strong confidence from the debt markets.

In the past three years, the company has accelerated its emerging market efforts, particularly in Asia. This has paid off as Asia now contributes almost 27% of operating income. With this market in high octane growth mode, the company is expected to have revenue growth of about 8-9% this year.

In terms of valuation, PM is reasonably priced at around 10 times EV/2011E EBITDA, and 15 times 2011E earnings. Free cash flow yield is expected to be around the 8-9% range for the next few years. The company even has healthy dividend yield of 4.1%, providing some downside protection.

Just as a bonus, there is even a near term catalyst coming from Japan. Japan Tobacco, the country's market leader with 65% market share, is currently facing supply disruptions. As a strong global brand, PM is in the perfect position to fill the market gap and enjoy a boost in its EPS