Stock Analysis- Philip Morris International · 5" " Section(B)!Company!Profile!! (BL1)!Profile!...

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CIF Stock Recommendation Report (Spring 2015)

Analysts: Beau Bowman and Bo Yang

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Date: March 25, 2015

Company Name and Ticker: Philip Morris International (PM)

Section (A) Investment Summary

Recommendation Buy: No

Target Price: N/A

Stop-‐Loss Price: N/A

Sector: Consumer Staples

Industry: Tobacco

Market Cap (in Billions): 122.90B

# of Shrs. O/S (in Millions): 10,919,236

Current Price: 79.45

52 WK Hi: 91.63

52 WK Low: 76.59

EBO Valuation: $52.84

Morningstar (MS) Fair Value Est.: $92

MS FV Uncertainty: LOW

MS Consider Buying: $73.60

MS Consider Selling: $115.00

EPS (TTM): 4.76

EPS (FY1): 4.31

EPS (FY2): 4.58

MS Star Rating: Four Stars

Next Fiscal Yr. End ”Year”: 2015 “Month”: December

Last Fiscal Qtr. End: Less Than 8 WK:

No

If Less Than 8 WK, next Earnings Ann. Date:

N/A

Analyst Consensus Recommendation: Hold/Underperform

Forward P/E: 17.2

Mean LT Growth: -‐1.2%

PEG: 5.3

Beta: .97

% Inst. Ownership: 70.28%

Inst. Ownership-‐ Net Buy: NO

Short Interest Ratio: 1.90

Short as % of Float: .60%

Ratio Analysis Company Industry Sector

P/E (TTM) 16.62 26.11 40.28

P/S (TTM) 4.13 3.54 5.6

P/B (MRQ) -‐ 24.79 32.03

P/CF (TTM) 14.63 24.35 35.20

Dividend Yield 5.03 3.58 2.23

Total Debt/Equity (MRQ) -‐ 9.10 30.10

Net Profit Margin (TTM) 25.37 13.52 13.19

ROA (TTM) 20.59 38.42 29.24

ROE (TTM) -‐ 92.82 72.57

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Investment Thesis: PROS:

• Philip Morris International is currently sitting at a very low price.

• Huge dividend yields of 4.76% in 2014 and a promise by the company to go higher.

• They own 28% of the world market (excluding China and the U.S.) as well as superior market share in many different individual markets all over the world.

• Incredible brand loyalty in their products especially with the Marlboro brand.

• Large distribution networks and infrastructure gives pricing power over competitors.

• Has shown great growth in immerging markets.

CONS: • New litigation such as

packaging restrictions could spell decreased sales volumes.

• Current fall of the Euro and rise of the dollar has hurt the company in the past year and could continue.

• Anti-‐smoking campaigns could be a detriment to the industry as a whole.

• New e-‐cigarette technology may not catch on as hoped.

Summary Philip Morris International is a world renowned staple of the tobacco industry with their infamous brand of Marlboro, among others. They have incredible dividend yields as well as great competitive structure to be a well sustainable company. Overall however we have concluded they are simply too risky do to variable market factors. Company Profile: Philip Morris International Inc. is a leading international tobacco company with seven of the world’s top selling brands the most notable being Marlboro. They sell in over 180 international markets and holds 15.6% of the total market. They were a spinoff of Altria and do not sell in the United States. Fundamental Valuation: The fundamental valuation tells us that the stock is far overvalued. This conclusion is not conclusive however because of the negative book value the company currently has as well as currently low EPS forecasts and a negative long-‐term growth rate. The analysis is therefore not strongly conclusive. Relative Valuation: Relative Valuation showed a P/S multiple implied price or $81.88, which would make the stock undervalued. Comparatively Philip Morris has good FY2 estimates and the best P/CF out of all the top competitors. Revenue and Earnings Estimates: Philip Morris International had mostly three positive surprises in sales within the last five quarters and four positive surprises in earnings within the last five quarters. They were able to surprise most estimates with competitive pricing in many markets. Analyst Recommendations: Most analysts say to hold the stock while many also predict the stock to underperform in the near future. There is a collective group that says to buy the stock as well. No analysts say to sell. The only changes have been from hold to underperform.

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• Company may also still see continued declines in sales volume as it did in 2014.

SUMMARY:

• Despite Philip Morris International’s past success and competitive market share, we believe the future of the tobacco industry to be too uncertain due to many unforeseeable challenges.

Institutional Ownership: Institutional institutions own 72.28% of shares in Philip Morris International and the top ten institutional holder owns 29.75%. This shows that the stock is favored by institutional investors, who typically are more knowledgeable than ordinary investors. Short Interest: Short interest had a steady 15% increase and then declined dramatically by 30%. The amount of volatility surrounding the short interest we concluded that only 20% of investors believe the stock price will increase. Stock Price Chart: The stock price of Philip Morris International remained heavily competitive and typically beat the tobacco index, as well as Altria and British American Tobacco. About three quarters of the way through 2013 however Philip Morris International had a slight decline then stagnation till the end of 2014 where it is not below the British American Tobacco, Altria, the tobacco index, and the S&P 500.

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Section (B) Company Profile

(B-‐1) Profile Philip Morris International Inc. is a holding company started in Virginia in 1987. They are involved in the manufacture and sale of cigarettes, other tobacco products, as well as other nicotine products. They sell these above-‐mentioned products only outside the United States is over 180 markets. The following breaks down the business segments by market share:

Philip Morris International is a formidable opponent within the tobacco industry, typically holding the number one or two position in most market share positions with a variety of premium to low-‐price brands under their control. The most notable product under the Philip Morris name is the world’s best selling cigarette brand, Marlboro, which accounted for about 33% of Philip Morris shipment volume in the year 2014. Total share in the cigarette market outside the United States was reported to be 15.6% in 2014 down from 16.4% that was reported in 2012. Other brands associated with the tobacco conglomerate are: Merit, Virginia Slims, Parliament, L&M, Chesterfield, Bond Street, Muratti, Philip Morris, and Lark among other more localized brands which are company specific.

Macro Environment and Business Responses:

In recent years Philip Morris International has seen declines in worldwide market share, from 16.4% in 2012 to 15.6% in 2014. Tobacco in itself is considered a staple good, which has maintained a profitable good for many years not responding in a volatile fashion to changes in the worldwide economy. United States trends say cigarette sales are decreasing but international estimates appraise sales internationally will increase in the coming years. The macro environment for cigarettes has been shaky and that is why many tobacco companies have been shifting to smokeless and non-‐tobacco products. Philip Morris is no exception and has made several recent important acquisitions. The most recent in 2014 being the 100% acquisition of Nicocigs Limited, a leading U.K. Based e-‐vapor company. In the fourth quarter of 2013 they also restructured business in Egypt by resigning long-‐term distribution and business partnerships. Back in 2013 Philip Morris International also signed a deal to make Altria owned e-‐cigarette products available for Philip Morris International sale outside of the U.S. exclusively.

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In addition the cigarette consumption in certain markets is affected by seasonality, where more cigarettes are consumed during the summer months due to the positive weather changes.

Competition:

The international tobacco market is subject to a highly competitive environment for all business aspects. Some of the main international competitors are British American Tobacco plc, Imperial Tobacco Group plc, Japan Tobacco Inc., Lorillard Inc., and Reynolds American Inc. The closest of these to the total market capitalization of Philip Morris International (120.49 B) is British American Tobacco (102.30 B). Some other competitors are smaller state-‐owned enterprises that have put pressure on sales in some specific areas.

Significant Risks and Innovations:

The most obvious risk associated with tobacco-‐oriented companies is the detrimental effects the products of which they are selling have on customers. Philip Morris International addresses this issue in their 10k 2014 report in a section explaining their “Reduced Risk Products” or RRPs. These products may contain tobacco or only nicotine but are less harmful than traditional combustible cigarettes. Some examples of these potential alternatives are using pressed carbon to heat tobacco into an aerosol, using a weak organic acid to heat nicotine salt to an aerosol, battery powered e-‐vapor products, as well as others still in the experimentation phase.

Legal Battles and Patents:

Recently three large U.S. based companies including Philip Morris International’s affiliate company, Philip Morris USA, as well as Reynolds Tobacco Co and Lorillard will be forced to pay 100 million to settle hundreds of federal smoking lawsuits. Many European countries however do not have class action lawsuits such as the U.S. Below is the chart describing legal action taken against Philip Morris International, taken from the company’s 2014 10k annual report:

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While still directly connected with Philip Morris USA Philip Morris International is a separate legal entity so cases of United States Jurisdiction would not apply to Philip Morris International unless those cases were of fraud or some other kind of corporate offense. Currently Philip Morris International has more than 5,200 patents worldwide as well as more jointly funded patents after a 2008 Intellectual Property Agreement with Philip Morris USA Inc. Essentially they both own the same patents but the patents only work within each companies respective jurisdiction. Legal battles are a constant threat in the tobacco industry so it is hard to predict any future allegations although for now Philip Morris has not seen more legal turmoil than usual.

(B-‐2) Revenue and Earnings History

FY 2013 Totals: Revenues: 31,219 Earnings Per Share: 5.236

FY 2014 Q2, Q3, Q4 Total Revenues: 22,850 Earnings Per Share: 3.584

1) What are your observations on revenue? Was there a notable up-‐ or down-‐trend, year-‐over-‐year? Was there seasonable pattern?

In 2013 there was a sizable dip in revenue in the December fourth quarter and then revenues increased again until the third quarter of 2014 and then had a large dip before starting fiscal year 2015.

2) Likewise, what are your observations on earnings? Earnings per Share followed a similar pattern rising throughout most of 2013 and then decreasing in the fourth quarter of 2013 to the lowest EPS of that year. Then in 2014 EPS peaked in the third quarter and then dropped to the lowest they have been in at least two years.

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(B-‐3) Most Recent Quarterly Earnings Release

1) When was the company’s most recent earning release? The most recent earnings release was from the fourth quarter on February 5, 2015.

2) In that earnings report, was reported revenue a (1) beat, (2) match, or (3) miss from consensus estimate?

Revenue slightly beat analyst’s consensus estimates of $7.12 Billion with fourth quarter 2014 results of $7.20 Billion

3) Likewise, was reported earnings a (1) beat, (2) match, or (3) miss from consensus estimate?

Earnings slightly missed analyst’s consensus estimates of 1.06 per share with fourth quarter 2014 results of 1.03 per share

4) What did the management attribute the beat/miss to? The beat for revenue was attributed to good management decisions in pricing strategies in many different markets. This favorable pricing revenue was offset by volume decreases around the globe making the beat only subtle. The slight miss in earnings was attributed to a decrease in shipment volume as well as unfavorable currency spikes and dips.

5) Did the management provide guidance about their current quarter and their outlook for the year? What were the key points of the guidance?

Management was pleased with the small misses given a very bad environment for the tobacco industry as a whole in 2014. The outlook in 2015 is for earnings per share to drop slightly but predict even higher market share gains as well as positive outlooks for the new iQOS product; one of Philip Morris International’s newly announced Reduced-‐Risk Products. Management feels confident in their fundamentals in positioning for 2015 and still is assured in 100% of free cash going back to shareholders.

6) How did the stock react to that earnings release? After the earnings release there was not a huge volume change but the stock price dropped about $2 per share in 4 days then shot back up to 0.20 per share higher than the price before the earnings release by February 12, 2015, 7 days after the release.

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7) Other observations worth noting?

Management did a great job at mitigating potentially large downsides by revamping many pricing strategies in order to compensate for the anticipated decrease in sales volume of 2014 as well as the unpredicted currency volatility.

Section (C) Fundamental Valuation (EBO)

Inputs (provide below input values used in your analysis)

EPS forecasts (FY1 & FY2): FY1: 4.31 FY2: 4.58

Long-‐term growth rate: -‐1.2%

Book value /share (along with book value and number of shares outstanding):

Book value: -‐12629.00

# of shares outstanding: 1546.90 million

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Book value / share: -‐8.164

Dividend payout ratio: 81.61%

Next fiscal year end: 2015

Current fiscal month: 3

Target ROE: 67.74%

Discount rate 8.33%

Input for discount rate:

Risk-‐free rate: 2.72%

Beta: .97 (Which is the average of 1.03, 1.04, .9, and .9 taken from 4 different Financial websites)

Market risk premium: 8.50%

Output

Above normal growth period chosen: Chose 7 years

EBO valuation (Implied price from the spreadsheet): 2015: $52.84

1) Comment on the fundamental value obtained in relation to the stock’s current price and its 52-‐week price range.

The fundamental value of the stock with the above inputs is $52.84, which is not even registered in the 52-‐week high and low for the stock. The 52-‐week low is $76.60 and the high is $91.63.

2) What might be “soft spots” of the inputs? And why? Low EPS Estimates-‐ The low fiscal year 1 and 2 estimates give the stock a very low valuation because the outlook on growth does not look good according to analyst’s estimates. This affects the current valuation and the short-‐term valuations more heavily. Book value-‐ The book value being negative is a huge soft spot for the end value. A negative book value affects the valuation in the future years. They have such a negative book value because of the massive amounts of debt they hold which is okay for a company with such large cash flows, they are merely taking advantage of the low interest rates. Expected Return on the Market-‐ Plays a big role in the valuation equation and since the market is supposed to be highly bullish in 2015 it negatively affects the implied price. Defensive stocks such as tobacco become more valuable during times of low market returns and recessions.

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Sensitivity Analysis

1) Explain the input values used in sensitivity analysis. Compare the fundamental values obtained here in relation to the value from the base case Reuters was the source for most of our values. Beta was calculated using an averaged beta from MorningStar, Yahoo Finance, MSN money, and Reuters. 30-‐year bond rate was taken from the fed website. All the numbers are correct but this valuation uses values not reliable to the tobacco industry to provide an implied price.

2) Other observations worth noting

In all long-‐term growth period cases there was a downward trend.

EBO Valuation would be $64.36 in 2015 if changing growth rate from mean (consensus) to the highest estimate FY1: 5.25 and FY2: 4.78

EBO Valuation would be $50.14 in 2015 if changing growth rate from mean (consensus) to the lowest estimate FY1:4.09 and FY2: 4.39

EBO Valuation would be $74.11 in 2015 if changing the expected return on the market to 6%

EBO Valuation would be $45.14 in 2015 if changing the expected return on the market to 10%

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Section (D) Relative Valuation

1) Discuss various valuation multiples of your stock and its peers. Comment if any of these stocks have multiples far off from the others and explain whether it makes sense.

In choosing competitors with Phillip Morris International it is difficult to find ones that have the unique market position as PM.N due to its purely international sales. Since Phillip Morris International and Lorillard actually have negative book values these companies do not have P/B ratios or ROE ratios making the P/B multiple and the Value Multiple invalid for the relative valuation. PEG Ratio-‐ generally speaking closer to 1 PEG ratios are good for investors. Philip Morris International’s PEG is -‐14.99 because of the predicted negative long-‐term growth rate. This makes the PEG not a very accurate measure in valuing this stock. PEG Multiple Implied Price-‐ For Philip Morris the PEG ratio mean implied price is -‐$12.8 which is because of the negative Long Term growth rate makes all of the companies multiples negative thus ruling out the PEG ratio as an accurate measure. P/S Ratio-‐ Low Price to sales ratios are good for investors. Philip Morris International has a P/S of 4.05, which is the second lowest P/S ratio within its four best competitors. This is a potentially good sign for an investor looking to but Philip Morris international. P/S Multiple Implied Price-‐ Philip Morris International’s price per sales multiple implied price is only slightly more expensive (by $1.49) than Altria’s and not nearly as expensive as British American Tobacco’s (difference of $12.74). The implied price brought by the P/S multiple is $81.88 however which means that the stock looks undervalued with its current price of $77.89.

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P/CF Ratio-‐ Looking at just the P/CF values Philip Morris International has the lowest ratio of 14.35, which is 3.2 away from the next closest company being British American Tobacco. A low P/CF means undervaluation for a company, which is good for potential investors. P/CF Multiple Implied Price-‐ The price to cash flow multiple implied price for all of the companies seems way off with differences averaging around $34.00. Conclusively this multiple may not be a good measure for implied price.

2) Compare your findings with comments from analysts from Morningstar Direct and other online resources.

Many analysts are skeptical about Philip Morris International due to many macro factors so they typically have had a consensus to hold the stock or to buy. One opinion would be consistent if the relative valuation is true and the stock is overvalued in many categories. In terms of the P/S implied price this would indicate the stock is undervalued and would be consistent with the analysts that are saying to buy the stock.


Overall the relative valuation did not prove to be entirely useful for valuating Philip Morris International because of the missing P/B and ROE numbers as well as the negative growth rate.

P/S was the best indicator from the relative valuation and it gave good evidence that Philip Morris International is undervalued using the implied price from the P/S multiple.

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Section (E) Revenue and Earnings Estimates

(E-‐1) Historical Surprises

Analysis:

When it comes to analysts estimates Philip Morris International has had more positive surprises than negatively surprises within the last year. In terms of earnings per share they have consistently beat analysts estimates by an average of 3.522% in the last 5 quarters. In terms of sales they have beat analysts estimates by an average of 1.334% over the last 5 quarters.

These surprises were tracked directly by the stock price jumping up a $2 per share over a month on average after positive surprises and dropping price about $1 per share over a month with a negative surprise.

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(E-‐2) Consensus Estimates

Sales High Divergence Low Divergence

Quarter Ending Mar-‐15 6.057% 4.385% Quarter Ending Jun-‐15 4.198% 3.299% Year Ending Dec-‐ 15 8.261% 4.930% Year Ending Dec-‐16 6.020% 4.050%

Earnings (Per Share) High Divergence Low Divergence Quarter Ending Mar-‐ 15 2.941% 3.922% Quarter Ending Jun-‐ 15 6.306% 3.604% Year Ending Dec-‐ 15 21.247% 4.388% Year Ending Dec-‐ 16 4.772% 4.772%

Analysis:

There seems to be a trend for higher divergence amongst both the sales and earnings predictions. Predictions for the year ending December 15 in both earnings and sales have the highest divergence of estimates from the mean. The analysts that have weighed in on these predictions have been pretty consistent in number averaging about 16 or 17 for the year predictions and 7 or 9 analysts for the quarterly predictions.

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(E-‐3) Consensus Estimates Trends

Analysis:

For the consensus sales estimates they all trend evenly downward from the past year to todays current estimate indicating analysts have been getting significantly less optimistic about future sales.

Earnings Per Share has also had downward trending estimates. Specifically the current year ending December 16 estimate is far lower than in the estimate from a year ago by about .43 per share.

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(E-‐4) Estimates Revisions Summary

Analysis:

The revisions for revenue and earnings are exactly the same except for one more analyst revised his/her march quarter 2015 revenue estimate down. The trend very clearly seen in analyst opinion is a very pessimistic view of both revenue and earnings in all future predictions with all but one opinion choosing to revise the estimates down in March and June quarters as well as the one and two year predictions. Overall analysts are clearly not optimistic about revenue and earnings for Philip Morris International.

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(E-‐5) “Consensus Earnings Revisions” from CNBC

Revision Date

Revision Type

Revision Up/Down

Current

Previous

% Change

# of Analysts Reporting

3/18/15 UP 1/3 1$.02 $1.02 0.30 9 3/17/15 DOWN 0/3 $1.02 $1.02 0.10 9 3/12/15 DOWN 0/3 $1.02 $1.02 0.68 9 2/28/15 DOWN 0/6 $1.07 $1.07 0.09 8 2/26/15 DOWN 0/6 $1.07 $1.08 0.46 8 2/13/15 UP 2/6 $1.02 $1.02 0.10 8 2/12/15 DOWN 2/5 $1.02 $1.06 2.94 7 2/6/15 DOWN 1/6 $1.06 $1.07 1.22 8 2/5/15 UP 1/6 $1.07 $1.06 0.38 8 1) Make note of the company’s:

Most recent earnings reporting date: 2/5/15 Next earnings report date: 4/16/15

2) Review revisions day by day, and comment on (1) whether they tend to be clustered, and (2) if clustered, were they near earnings reporting date? The revisions do tend to be clustered especially around the week of and after the last earnings release. Then again very recently within the last week they showed fluctuations.

3) Were there any greater than 10% consensus revisions? What is the maximum % consensus revision? No, the greatest change was a downgrade of 2.94% made on February 12, 2015.

4) Observe stock price chart, how did the stock trade around dates of greater than 10% consensus revisions? Around the largest change on 2/12/15 the stock leveled out from a steady rise. Then the stock price took a large drop after the series of four downward revisions from 2/26/15 to 3/17/15.

Other observations worth noting?

Almost all of the revisions made are very small, this indicates that analysts are very confident about the company and their estimates.

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Section (F) Analysts’ Recommendations

(F-‐1) Reuters Most Recent Three Months Analysts Recommendations

1) Review the trend of analyst recommendations over the last three months. Is there a notable change of analyst opinions, turning more bullish or bearish? Over all speaking, in the 3 month period, there is no significant change but one analyst changed from HOLD to UNDERPERFORM. The stock is steadily rising in the current period.

2) How many different ratings out of the five possible ones did the company receive currently, one, two, and three months ago? Currently, 4 analysts suggest to BUY and 2 state OUTPERFOM whereas 6 recommend to be HOLD and 4 indicate to be UNDERPERFORMED. The only change from 3 months ago was an analyst from HOLD to UNDERPERFORM.

3) Is there a notable trend of opinion convergence or divergence? There has been no notable trend of opinion movement except one from HOLD to UNDERPERFORM.

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4) Cross check (1) Morningstar analyst’s research report; and (2) media or other analysts’ comments from online financial sites. Is what you see here consistent to comments elsewhere? Compared with 5 analysts from Morningstar, 1 suggests to BUY and 1 states the stock is OUTPERFORMED. On the other hand, 2 recommend to HOLD and 1 suggests to SELL the stock. When take a glimpse on the CNBC, 3 strongly suggest to BUY and 2 suggest to BUY. On contrary, 3 recommend to HOLD and 4 state the stock will UNDERPERFORM. Lastly, from Yahoo Finance, 3 suggest Strong BUY and 3 on BUY, whereas 6 recommend to HOLD and 4 state the stock will UNDERPERFORM. Comparison the information above, CNBC and Yahoo Finance analysts’ opinions are relatively closer to the Reuter’s. Some inconsistency suggestions between Morningstar and Reuter’s, however the majority remain the same.


In the current month, none of analyst provide recommendations for the Philip Morris from Yahoo Finance. The information we gathered come from last 3 months.

(F-‐2) Most Recent One Month Analysts Upgrades/Downgrades from CNBC

There is no recent upgrades or downgrades from CNBC’s analysts.

1) Make note of the company’s (1) last earnings reporting date, and (2) next earnings reporting date. Philip Morris’ last earnings reporting date was their Q4 in 2014 on 2/5/2015. They estimated to report earnings on 04/16/2015 for their Q1 in 2015.

2) Add up the number of upgrades on weekly basis. Do the same for downgrades. Were there more up-‐ or down-‐grades? Were there any consistent trend you observe in the recent month? Were there any up-‐ or down-‐grades of more than “one grade”? We went through the recent 3 months, there is no upgrades and downgrades for Philip Morris.

3) Were there clustering of up-‐ or down-‐grades? If so, were they clustered around earnings report date? No upgrades and downgrades in the recent 3 months.

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4) Observe stock price chart, how did the stock trade around dates of up-‐ or down-‐grades? No upgrades and downgrades in the recent 3 months.


We took a look at the stock price in the recent 3 months. PM is on a slowly recovery from the recent bearish position in March.

Section (G) Institutional Ownership

Copy/paste the completed “CIF Institutional Ownership” spreadsheet here.

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Combine information provided in all three sections to discuss:

1) Whether institutions, on net basis, have been increasing or decreasing ownership and whether the change can be considered as substantial The number of net buyers has been increasing in the recent period. The three month change was 78 indicates that there has been a moderate increased positions than decreased positions. The net change is 78, which represents 4.44% of total shares. Therefore, there has been some changes but not that huge.

2) Whether the stock has sizable institution interests/support Institutional investors own 72.28% shares of Philip Morris and top 10 institution holder is 29.75%, which are both a strong indicator that those wisely investors see value in this stock. This would take positive future outlook for PM and bring more investors.

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3) The extent of the (> 5%) owners by adding up all >5% ownership, and make an effort to identify those that are mutual funds

There is no Mutual Fund that have over 5% ownership. Capital Income Builder Inc. accounts for the largest ownership with 2.1% outstanding, Vanguard Total Stock Market Index Fund and Investment Company of America have 1.65% and 1.56% respectively. Fundamental Investors Inc. and Growth Fund of America Inc. followed behind with a percentage of 1.28 and 1.21. The next few Fund holders shown above are more close to 1% which took less significantly effects.


We did a little research on our largest Mutual Fund Holders-‐-‐-‐Capital Income Builder, Inc. We found that this mutual fund corporation is rated by the Morningstar with an overall rating of 4 stars out of 5. Moreover, the overall Morningstar risk rating is relatively low.

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Section (H) Short Interest

Philip Morris

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First Competitor-‐-‐-‐ British American Tobacco

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Second Competitor-‐-‐-‐-‐Altria Group

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(H-‐2) Short Interest Data

Philip Morris

Avg Vol Avg Vol Shares Float

(3 month) (10 day) Outstanding

5,185,740 7,057,740 1.55B 1.54B

Shares Short Short Ratio Short % of Float Shares Short

(As of Feb 27,2015)

( As of Feb 27,2015)

(As of Feb 27,2015)

(Prior Month)

9.17M 1.90 0.60% 8.95M

British American Tobacco



283,756 352,662 932.06M 927.04M


(As of Feb 27,2015) (As of Feb 27,2015) (As of Feb 27,2015) (Prior Month)

217.48K 0.80 N/A 299.81K

Altria Group plc

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6,761,930 9,129,340 1.97B 1.96B


(As Feb 27 2015) (As Feb 27 2015) (As Feb 27 2015) (Prior Month)

10.42M 1.60 0.50% 12.16M

1) Make note of the company’s (1) last earnings reporting date, and (2)

Next earnings reporting date.

1) Philip Morris reported its Q4 in 2014 on 02/05/2015.

2) Philip Morris will report its Q1 in 2015 on 04/16/2015.

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2) Discuss market sentiment on the stock based on the short interest statistics, recent trend reported in in (H-‐1) and (H-‐2)? Has the sentiment turned more bullish or bearish over the last year? How about in more recent month and why?

Take a look at Philip Morris’ short interest in the last year, we can find there was a totally 15% steadily increase in the first 3 months until the significantly drop on 07/15/14. After that, the short interest dramatically declined 30% in only fifteen days and remained constantly until 10/31/14. A 20% increment followed in the next month and the stock again dropped 12.36% in only fifteen days. For the given information above, we know that in last year there were approximately 20% investors who believed the stock price will increase. The trend of the recent short interest became stable with a 2-‐3% fluctuation.

4) From (H-‐1), observe “short interest” and “# of days to cover” values for two reporting dates immediately before and one reporting date immediately after earnings report. (1) Were there notable increase or decrease in the values, right before or right after earnings report? (2) Observe stock price chart and comment on how stock traded around those dates. The stock was reported earnings on 02/05/2015, and we can find a 9.1% decrease after the report. The days to cover fluctuated a tiny amount of 0.07 days which do not really affect our estimation.

The stock price chart around the announcement date was 82.57 at 05/02/2014 and increased to 83.69 on 12/02/2014 which was a slight 1.35% arise.


The stock price for PM dropped heavily in March due to the FED interest rate announcement. However, in the recent weeks the stock looks like “icebreaking” from the terrible situation and warmed up to be a better performance.

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Section (I) Stock Charts

For (I-‐1) – (I-‐3), the stock price charts should include (1) your stock, (2) 1 competitor, (3) sector ETF, and (4) SP500

(I-‐1) A three months price chart

(I-‐2) A one year price chart

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(I-‐3) A five year price chart

1) (I-‐1) – (I-‐3) Discuss what you observe from the above stock price charts. This should include comparing your stock to competitors, sector, and SP500 over the three different time horizons.

From the 3 months charts, Philip Morris has been underperforming the two competitors, consumer staple sector and S&P 500. The stock has also been beaten by all the competitors, S&P 500 and Consumer Staple Sector in one year time period. In the 5 year horizon, we can see a little difference between the first two. The company actually kept leading the market until the middle of 2013, and began to downturn and underperformed for almost 2 years due to regulations and policies effect. So far in the current period the stock has seen a continuously positive rising and we are expecting a better performance.

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(I-‐4) Technical Indicators (“Moving Average” and “Relative Strength Index” from

Short-‐term moving average and relative strength index indicators

Long-‐term moving average and relative strength index indicators

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1) Discuss your findings from these sets of technical indicators. Compare your findings here to findings from fundamental analysis. Are findings from technical analysis supportive of your other findings?

Short-‐term

In the 1 year short-‐term period, we find the stock price remained the trend of rising until Jun 2014. The dramatically decrease happened in that month indicates a bearish position for the stock at that moment. After the huge decline, the stock price stared fluctuating up and down with the SMA, until another significantly drop in Dec 2014.Followed by these changes, the stock seems began to recovery in the recent period and started to decrease again.

Long-‐term

In the long-‐term period, the stock price stayed above the 50-‐day and 200-‐day moving average. The graph also indicates that PM has been steadily grown over the first 5 years. However, the stock began to decrease in the middle of 2013 and quickly recovered in the late 2013. In the recent period, as mentioned above, the stock began to fluctuate up and down for a while and dropped again.


Looking at the RSI indicator, we can find that the stock moves from 10.37 to 100, and for now, it holds the position around 35 to 40 which we think is a relatively decent time to buy. However, we still think the purchase contains risky.

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Bibliography:

Caplinger, D. (2014, December 11). Philip Morris International: Is It Time to Buy This Stock? Retrieved March

22, 2015, from http://www.fool.com/investing/general/2014/12/11/philip-‐morris-‐international-‐is-‐it-‐time-‐to-‐buy-‐this.aspx

Philip Morris International Inc (PM) SEC Filings -‐ NASDAQ.com (NASDAQ.com)

http://www.nasdaq.com/symbol/pm/sec-‐filings PHILIP MORRIS INTERNATIONAL (PM:New York Consolidated): SEC Filings, 10-‐Q & 10-‐K (Bloomberg.com)

http://www.bloomberg.com/research/stocks/financials/secfilings.asp?ticker=PM Philip Morris International (PM) Showing Signs Of Being Water-‐Logged And Getting Wetter (TheStreet)

http://www.thestreet.com/story/13075746/1/philip-‐morris-‐international-‐pm-‐showing-‐signs-‐of-‐being-‐water-‐

logged-‐and-‐getting-‐wetter.html?puc=CNNMONEY&cm_ven=CNNMONEY Philip Morris International Inc (PM) Earnings Report (NASDAQ.com)

http://www.nasdaq.com/earnings/report/pm Philip Morris – Too Much Debt?

http://seekingalpha.com/article/1691142-‐philip-‐morris-‐too-‐much-‐debt

PM Historical Prices | Philip Morris International Inc Stock -‐ Yahoo! Finance (PM Historical Prices | Philip Morris International Inc Stock -‐ Yahoo! Finance)

http://finance.yahoo.com/q/hp?s=PM Equities (Philip Morris International Inc, PM:NYQ forecasts)

http://markets.ft.com/research/Markets/Tearsheets/Forecasts?s=PM:NYQ Philip Morris International Inc (PM XNYS:PM Stock Quote Price News)

http://quotes.morningstar.com/stock/s?t=PM

Philip Morris International Inc (PM.N) Quote| Reuters.com (Reuters)

http://www.reuters.com/finance/stocks/overview?symbol=PM.N Philip Morris International Inc (PM :) (Philip Morris International Inc)

http://data.cnbc.com/quotes/PM Philip Morris International Inc. (: NYSE:PM quotes & news)

https://www.google.com/finance?cid=722661 Market Summary (Stock market today: News, data and summary)

http://www.msn.com/en-‐us/money/markets

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