Will Philip Morris (PM) Stock Be Hurt by Lagging E-Cigarette Sales?

NEW YORK (TheStreet) -- Shares of Philip Morris International (PM) are up by 0.33% to $84.13 at the start of trading on Wednesday morning, despite concern over the sale of tobacco alternative electronic cigarettes.

Philip Morris is a Richmond VA-based tobacco products manufacturer including cigarettes, nicotine containing products and also distributes e-cigarettes.

Sales of e-cigarettes have been on a sharp decline in recent months, the Wall Street Journal reports. Dissatisfied customers, inventory backlogs, state laws and safety concerns have led some to believe that the once popular alternative to cigarettes is just a fad.

These concerns are expected to reduce the rate of the product's growth to 57% from its compound annual growth rate of 114%, the Journal added. The sale of Big Tobacco's "cigalike" devices fell by 21% and volume declined by 11% for the 12-week period ended Oct. 31.

Back in July, Philip Morris and Altria Group (MO) expanded their agreement on e-cigarettes to include research and development, Reuters reported. Philip Morris has the exclusive rights to sell Altria's e-cigarettes outside the U.S., and Altria the exclusive right to sell two of Philip Morris's "heated tobacco products" in the U.S.

Separately, TheStreet Ratings team rates PHILIP MORRIS INTERNATIONAL as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

We rate PHILIP MORRIS INTERNATIONAL (PM) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. Among the primary strengths of the company is its expanding profit margins over time. At the same time, however, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The gross profit margin for PHILIP MORRIS INTERNATIONAL is rather high; currently it is at 67.98%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 28.03% trails the industry average.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 14.5%. Since the same quarter one year prior, revenues fell by 11.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • After a year of stock price fluctuations, the net result is that PM's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed compared to the Tobacco industry average, but is greater than that of the S&P 500. The net income has decreased by 9.9% when compared to the same quarter one year ago, dropping from $2,155.00 million to $1,942.00 million.
  • Net operating cash flow has declined marginally to $2,693.00 million or 9.17% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, PHILIP MORRIS INTERNATIONAL has marginally lower results.
  • You can view the full analysis from the report here: PM

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

More from Markets

Stocks Turn Mixed as Dow Recovers from 500-Point Slide; Tech Shares Gain

Stocks Turn Mixed as Dow Recovers from 500-Point Slide; Tech Shares Gain

These Bank Stocks Could Be Oversold in the Market Wreckage

These Bank Stocks Could Be Oversold in the Market Wreckage

Jim Cramer: Why Uber and Lyft IPOs Are Bad for the Market

Jim Cramer: Why Uber and Lyft IPOs Are Bad for the Market

Nutrisystem Soars on Deal to Be Acquired by Tivity Health

Nutrisystem Soars on Deal to Be Acquired by Tivity Health

These 3 Marijuana-Related Stocks Are Ripe for Takeover

These 3 Marijuana-Related Stocks Are Ripe for Takeover