Philip Morris (NYSE: PM) saw its stock price drop by almost 20% in the last 3 years, from $109 in February 2017 to about $88 in February 2020. This fall was primarily driven by a drop in net income margin, due to higher marketing expenditure and cost of sales, along with reduction in the company’s price-to-earnings (P/E) multiple during this period. This was partly offset by revenue growth led by higher demand for heated tobacco products (e-cigarettes), and an almost stable share count. View our interactive dashboard analysis What Factors Drove Almost A 20% Drop In Philip Morris’ Stock In The Last 3 Years?

A] Revenue Growth

  • Philip Morris has seen a modest rise of $3.1 billion in its revenue base in the last three years, as net revenue increased from $26.7 billion in 2016 to $29.8 billion in 2019.
  • However, growth its likely to accelerate to $31.2 billion in 2020, benefiting from higher revenue from e-cigarette sales, partly offset by lower cigarette volume sold.
  • Shipments of heated products have increased over recent years, due to increasing demand for non-combustible options, along with the ongoing discounts and promotional offers.
  • Additionally, Philip Morris’ rising market share for its heated product segment in the EU region, Japan, and Russia have driven its segment revenue growth in the medium-term.
  • The FDA’s approval for marketing and sale of IQOS (PM’s flagship heated tobacco product) in the US is likely to boost segment revenues, as PM could now cater to the vast US market which is currently being dominated by JUUL.
  • Cigarette shipments have been declining over recent years, due to changing consumer preferences as more people are moving toward non-combustible offerings.

View the Trefis interactive dashboard on Philip Morris Revenues for more details on the company’s revenue segments and performance.

B] Net Income Margin Drop

  • Net income margin has remained volatile over the years but has declined from 26.1% in 2016 to 24.1% in 2019.
  • On the contrary, net income has increased marginally from 7 billion in 2016 to $7.2 billion in 2019, due to higher revenue.
  • Total expenses as a % of revenue increased from 73.9% in 2016 to 75.9% in 2019, which led to a drop in margins during this period.
  • Higher expenses were primarily driven by higher marketing cost and rise in cost of sales.
  • SG&A expense has increased sharply from 23.9% of revenue in 2016 to 29.4% of revenue in 2019. Increased investment behind heated tobacco products across all regions, predominantly the European Union and East Asia & Australia, as the company is pushing its heated tobacco offerings more aggressively.
  • Cost of sales as % of revenue increased slightly from 35.2% in 2016 to 35.3% in 2019 driven by unfavorable volume mix and foreign exchange headwinds and as the company continued to offer incentives/discounts on heated tobacco products, due to which revenue growth did not match up to volume growth.

C] Rise In EPS

  • Despite drop in net income margin, EPS saw an uptick due to higher net income on the back of higher revenue.
  • EPS increased slightly from $4.49 in 2016 to $4.62 in 2019.
  • Share count has remained stable during this period.

D] Reduction In P/E Multiple

  • Philip Morris’ P/E multiple decreased from 21.9x in February 2017 to 17.9x in February 2020.
  • This compares with Altria, which saw its P/E multiple expand from 25.5x to 45x.
  • Philip Morris’ P/E multiple reduction has mainly been driven by concerns over rising consumption of e-cigarettes among teenagers and regulatory crackdown on the same.

Though we have seen a 20% drop in the stock price in the last 3 years, Trefis has a price estimate of $94 per share for Philip Morris’ stock. View our interactive dashboard on Philip Morris Valuation to understand what is driving a higher stock price estimate for the company’s stock.

Additionally you can also check What Factors Drove Almost A 40% Drop In Altria’s Stock In The Last 3 Years?, to understand stock price movement and the drivers behind it for close peer Altria.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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