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Driving forces

Philip Morris is the largest and most profitable consumer product company in the world. They are global consumer Products Company, manufacturing and marketing tobacco, food, and beer brands around the world. They made a legendary to their success in growing the company in the world. Philip Morris is the overwhelming leader in domestic market share, achieving 1.5 times the sales of its closest rival, RJR Nabisco. Philip Morris risen their percent of sales by giving discount to their products and they became the market leader in the low priced segment. They are treating their employees well and give importance by giving benefits.

Restraining forces -

The government control prices and levy huge taxes which double the price of pack of Marlboros and cut PMs sales by 80 percent. Theyve been ban for one month in Italy because of government investigation of cigarette imports that illegally avoided Italian taxes. The health consciousness of people affects the demand of cheese because of its high in saturated fat and cholesterol. The declining of American cigarette industry, the slowing processed food sales and the antismoking litigation and legislation are the threats to Philip Morriss traditional level of performance.

Current market Philip Morris International (PM) has long been an attractive company for investors due to its growth prospects, international business and economic moat. Several weeks ago, they wrote an article for Seeking Alpha offering up the company as a potential hedge against inflation. They still believe that the company offers that protection as its products have inelastic demand and the companys fully international sales Philip Morris International conducts no business in the United States. It is a good idea for investors to keep an eye on the companies in their stock portfolio and occasionally evaluate the company to ensure that their initial investment thesis still holds true. Here are a few highlights from this report:

Diluted EPS increased by 21%, or 17.3% after adjusting for currency fluctuations, from 2009. Adjusted diluted EPS increased by 17.6%, or 14.0% after adjusting for currency fluctuations, from 2009. Net revenues increased by 8.7%, or 5.9% excluding currency fluctuations, from 2009. Completed the 2008-2010 cost savings program which should save the company $1.5 billion annually going forward. Repurchased 97.1 million shares at a cost of $5.0 billion. This gives an average cost per share of $51.49, a price that is significantly below the current share price. The company expects to repurchase another $5.0 billion of shares in 2011.

Philip Morris International reports its results in dollars. This nominally boosted the companys results, as the dollar lost value against every other major currency in 2010. This is exactly what would be expected in a dollar hedge. Philip Morris International thus fulfills my requirement of offering protection against a declining dollar. Philip Morris International also showed strong real growth. After backing out the income gains from the currency conversion, the company still experienced a double digit growth rate. If the top and bottom line growth was solely attributable to a decline in the value of the U.S. dollar then I would be rather concerned and would likely sell the stock. Fortunately, that is not the case with PM. Management expects that this will continue going forward. The forecast by management is an increase of 8.5% to 11% in reported diluted earnings per share in fiscal year 2011. This is not including any currency fluctuations so if the dollar continues to decline versus other currencies then this bottom line increase should be proportionally larger. The annual report did not say anything about a dividend increase but given the companys history, a dividend increase is fairly likely beginning with the October dividend. This increased dividend, if indeed it does happen, should be declared in September 2010. Philip Morris International is embarking on a new cost cutting program during the next year. The company expects to cut costs by $250 million by a combination of procurement changes, increased manufacturing efficiency, and product specification changes. This is following on the heels of two cost cutting programs that were completed in 2010. Investors should benefit from these initiatives as reduced costs mean that more money is able to flow through to the bottom line. It is not possible for companies to perpetually cost cut their way to prosperity. Philip Morris International has growing top line revenues, however. That is something desirable as it means that the company is able to grow its profits in ways other than simply cutting costs. Like its former parent Altria (MO), Philip Morris International operates with a copious amount of debt to increase its returns. At the end of 2010, PM had total long- and shortterm debt of $16.502 billion. The company also had $1.703 billion in cash, which gives it $14.799 billion in net debt. This gives a total debt to EBITDA ratio of 1.36 and a net debt to EBITDA ratio of 1.22. Both of these are somewhat lower than at the end of 2009, which shows improvement in the balance sheet. This debt does not appear to be a problem at this time. In fiscal year 2010, the company paid $876 million in interest

compared to an EBITDA of $12,736 million. Clearly, the company is having no difficulty meeting its debt obligations. At Tuesdays closing price of $64.25/share, PM has a trailing P/E ratio of 16.39. Management expects the company to earn between $4.35 and $4.45 per share in 2011. That would give the company a forward P/E of 14.77 and 14.44. Zack's gives PM a forward PE of 14.39 with a PEG ratio of 1.31. This is not value stock territory, but given the companys historical growth in both net income and dividends, it is not particularly expensive at these levels either.