Can Philip Morris Continue This Bull Run?

With shares of Philip Morris (NYSE:PM) trading around $96, is PM an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Philip Morris manufactures and sells cigarettes and other tobacco products. The company’s portfolio of international and local brands include Marlboro, Merit, Parliament, Virginia Slims, L&M, Chesterfield, Bond Street, Lark, Muratti, Next, Philip Morris, and Red & White. The company sells its products in approximately 180 countries in the European Union, Eastern Europe, the Middle East, Africa, Asia, Latin America, and Canada. Through its established brands, Philip Morris provides satisfaction to large base of consumers that purchase its products on a daily basis. During good and bad times, the products produced and sold by the company will continue to acquire customers well into the future.

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T = Technicals on the Stock Chart are Strong

Philip Morris stock has seen a monster uptrend since reaching lows in early 2009. The stock is currently trading at all-time high prices, a feat it has reached over the last five years. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Philip Morris is trading above its rising key averages which signal neutral to bullish price action in the near-term.

PM

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Philip Morris options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Philip Morris Options

16.38%

16%

15%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Flat

Average

June Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Philip Morris’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Philip Morris look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

2.40%

15.75%

-2.22%

0.74%

Revenue Growth (Y-O-Y)

-57.92%

4.59%

-5.38%

-0.97%

Earnings Reaction

-2.49%

2.42%

-4.19%

0.15%

Philip Morris has seen mixed earnings and revenue figures over the last four quarters. From these figures, the markets have had mixed feelings about Philip Morris’s recent earnings announcements.

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P = Average Relative Performance Versus Peers and Sector

How has Philip Morris stock done relative to its peers, British American Tobacco (NYSE:BTI), Altria Group (NYSE:MO), Reynolds American (NYSE:RAI), and sector?

Philip Morris

British American Tobacco

Altria Group

Reynolds American

Sector

Year-to-Date Return

14.78%

10.46%

16.22%

14.63%

14.48%

Philip Morris has been an average relative performer, year-to-date.

Conclusion

Philip Morris provides cigarette and tobacco products through established brands to an increasing consumer base around the world. The stock has done very well over the last few years and is now trading at all-time high prices. Earnings and revenue figures have been increasing and decreasing, in recent quarters, which has confused investors a bit. Relative to its strong peers and sector, Philip Morris has been an average year-to-date performer. Look for Philip Morris to OUTPERFORM.

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