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We recently reiterated our Neutral recommendation on Philip Morris International (PM - Analyst Report). Earnings of $1.27 per share in the first quarter of fiscal 2012 increased from the year-ago earnings of $1.06 per share and also moved past the Zacks Consensus Estimate of $1.19.

Results were driven by favorable pricing and volume mix as well as strong performance in Asia, Eastern Europe, Middle East & Africa, and the European region.

The company recently announced a new share repurchase program of $18.0 billion. This new plan is slated to start soon after the completion of the ongoing $12 billion share buyback program, which commenced in May 2010. The company has a target of buying back shares worth $6.0 billion during 2012. The company continues to pay its quarterly dividend regularly.

The company’s strong brand portfolio of cigarettes is enriched with popular names like Marlboro, L&M, Bond Street and Parliament. Philip Morris is strengthening its brand portfolio through innovations that are based on enhanced consumer understanding.

The L&M brand is being revitalized by the introduction of products with a smoother taste and more attractive pack designs. Furthermore, the portfolio of premium and high priced brands (Parliament, Virginia Slims and Chesterfield) as well as the low priced brands (Bond Street, Red & White, and Next) are being further developed and expanded

Moreover, the company has a presence in a large number of markets that provide it with a resilient long-term growth opportunity despite macro-economic headwinds. It occupies a large share in the emerging markets. Asia remains a growth engine for the company with robust growth in Indonesia, China, Philippines and Korea.

Additionally, results in Japan continue to be resilient even after post-tsunami troubles. We expect Asia to be instrumental in the company’s long-term growth. Further, through strategic acquisitions like Sampoerna in Indonesia and Larkson in Pakistan, the company has gained a strong foothold in the non OECD (Organisation for Economic Co-operation and Development) markets.

However, governments around the world are imposing restrictions on tobacco companies to discourage smokers in their respective countries, which in turn is denting cigarette consumption across the world. The US Food and Drug Administration (FDA) has passed a ruling that will compel tobacco companies to use strict warning labels on cigarette packets to turn customers away from smoking.

Governmental actions that outlaw the use of tobacco products, along with the diminishing social acceptance of smoking, will adversely impact the company’s volume in many markets.

Moreover, several retailers and importers have emerged who sell fake versions of the company’s top-branded cigarettes. Miami is one of the top three areas and a hotbed of counterfeit cigarettes. Apart from being fake, these cigarettes are far more injurious to health than their real counterparts.

As per the lab findings of “The Organized Crime and Corruption Reporting Project,” fake cigarettes from China are reported to contain 80% more nicotine and 130% more carbon monoxide, and impurities that are harmful for health. This kind of trafficking affects the company’s reputation and revenue

Currently, Philip Morris carries a Zacks #3 Rank (short-term Hold rating).

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