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PM with Some Concerns

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Philip Morris International Inc.
(PM - Free Report) has a history of strong operating and financial performance. Management has a credible strategy of growing EPS in the range of 10% to 12% and returning a substantial portion of the company's cash flow to shareholders.

However, PMI has experienced an adverse mix shift as lower margin markets have grown faster than the company's average. In addition, the company is exposed to risks from litigation and increased smoking restrictions. The Hold rating is maintained.

The stock of Philip Morris International has only been trading since the end of March 2008. Having followed the tobacco industry for two decades, PMI's stock should trade at a slight premium to Altria's stock, which has traded in a P/E multiple range of 6 to 18 over the last 10 years. We expect PMI's stock to trade in a P/E multiple range of 8 to 15. The target price of $45.25 is 13.5 times our year-end 2008 earnings estimate of $3.35.

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