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Improving market share at

Philip Morris

(MO) - Get Free Report

is coming at a great cost, and despite the spending deep discount cigarette makers continue to make moderate inroads against the company, Morgan Stanley argued in a research note.

As a result, the brokerage cuts its 2003 earnings estimate to $4.65 a share from $4.75 and lowered its price target to $48 from $50. The shares currently trade at $41.39.

Deep discounting, pirated cigarettes and the need to boost market share were all themes of Philip Morris's third-quarter earnings commentary in mid-October.

"The competitive environment continues to be very challenging," the company's chief financial officer, Dinyar Devitre, said on an Oct. 17 conference call, noting domestic industry shipments were down 3.1% in the third quarter. Still, the company managed to increase its domestic retail market share to 49.4% in September from a low of 49% in July.