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Why You Should Avoid Philip Morris (PM) Stock This Year?

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The tobacco industry is currently going through difficult times and Philip Morris International Inc. (PM - Free Report) is no exception to the trend. The company’s shares have declined 12% in the past one year, underperforming the Zacks categorized Tobacco industry, which witnessed a decline of 5%. Further, the chances of a rebound of this Zacks Rank #4 (Sell) stock seem minimal as the industry occupies a space in the bottom 50% of the Zacks Classified industries.

The industry-wide weakness can be attributed to the fact that tobacco companies are grappling with headwinds like declining volume in the smokeable category and rising competition in the vapor category. Additionally, these companies are constantly facing the brunt of worldwide anti tobacco campaigns.

Philip Morris has been experiencing lower shipment volumes in the past few quarters primarily due to the general shift of consumption away from tobacco products. Volumes declined 1.4%, 4.8% and 5.4% in the first three quarters of 2016, respectively. Further, the company is experiencing lower gross margins owing to escalating cost of sales.

Moreover, the company is losing share in Europe and the performance of Marlboro brand remains under pressure in the region. Further, the vapor category did not perform as expected during the third quarter and the scenario is anticipated to persist. The company is also facing competitive pressures from several local brands. These brands are cheaper and thus, negatively affect the company’s volume and sales. Such alternatives compel Philip Morris to keep its prices low, which consequently affect the margins.

The company’s performance portrayal did not unveil a favorable picture. The company has a negative average earnings surprise of 3.76% in the trailing four quarters. In the past 60 days, the company witnessed downward estimate revisions for 2016 and 2017. The Zacks Consensus Estimate for the current year is pegged at $4.48, down 6.7% and that for fiscal 2017 is $4.82, down 3.9% in the aforementioned time frame.

Stocks to Consider

Some better-ranked stocks in the broader consumer staples sector include Sysco Corporation (SYY - Free Report) , Lancaster Colony Corporation (LANC - Free Report) and Pinnacle Foods Company , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sysco Corporation has an expected earnings growth of 8.6%. Lancaster has an expected earnings growth rate of 3%, while Pinnacle Foods has a long-term growth rate of 6.5%.

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