Will Philip Morris Surprise To The Upside Or Downside?

With the third quarter earnings season now underway we can look forward to an increasing number of earnings reports from a diverse range of industries. As major banks continue reporting this week, we will also hear from tobacco giant Philip Morris. Investors will be looking for signs the contraction in demand for tobacco products has slowed.

A short time ago Philip Morris called off a potential merger with Altria, which helped lift the stock off its 2019 lows. Altria has far more exposure to the U.S. vape market, which is under pressure from U.S. lawmakers. Philip Morris can now focus on its IQOS product, which is the only cigarette-alternative to be approved by the FDA.

It’s projected shipment volumes will improve with the third quarter, although management still expects shipments to be 1% lower in 2019. That’s an improvement over the prior forecast, which was for shipments to fall from 1.5% to 2%.

Philip Morris is also likely to benefit from increased shipments of its IQOS heated tobacco product, and from higher pricing for the IQOS.

It is expected that revenues will increase by 2.2%, but earnings are expected to decline 5.6% due to increased interest expenses and a higher tax rate. Management has said that negative currency effects could strip as much as $0.14 a share from earnings.

Analysts are bullish over Philip Morris, with 13 of 18 analysts calling the stock a buy. There’s also a consensus price target of 93.47 a share on the stock, which is nearly 20% above Wednesday’s closing price of $79.10 a share.

Philip Moris YTD chart

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