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Chart of the Day / Phillip Morris (PM): A Screaming Buy on Dip

Phillip Morris (PM): A Screaming Buy on Dip

April 19, 2018

On Friday, shares of Phillip Morris (PM) plunged nearly $16 a share, pushing its dividend yield to more than 5%.  That’s quite a gift at these prices based solely on an incredible overreaction from the market.

The company posted EPS of $1 on revenue of $6.9 billion, as compared to expectations for EPS of 88 cents on revenue of $7.03 billion.  For the full year, it sees EPS of $5.25 to $5.40, as compared to estimates for $5.26. Despite some negativity in those numbers and a 2.3% decline in heated tobacco unit shipment volume, analysts are still excited about the stock long-term.

Cowen & Company for example reiterated an outperform rating with a $120 price target.  Wells Fargo analysts also reiterated an outperform rating, and contends that PM is a buy opportunity on the dip.

According to Barron’s:

Of particular interest was Philip Morris’s choice of the word “plateau” to describe its iQOS sales in Japan, as well as concerns about a potential guidance cut in the month ahead. Herzog acknowledges these issues, noting that there’s “downside risk” to earnings-per-share guidance of problems continue. But she remains optimistic. “With PM trading at 12.3x FY19 EV/EBITDA multiple (13% below its 1-year historical average) and a 5% dividend yield, we feel this is more than priced in and encourage long-term investors to use today’s extreme weakness as an entry point in the stock,” she writes.

Granted, cigarette sales have been crippled in recent years.

However, if PM only sold cigarettes and nothing more, we’d be bearish, too.

But the company realized the issue quite some time ago, diversifying with e-cigarettes and smokeless tobacco products, as the industry shifts to reduced-risk products with the U.S. considering stricter regulations.

Technically, the stock is still plunging on fear.

However, with it now outside its lower Bollinger Band (2,20) with an oversold read on RSI, MACD and Williams’ %R, let’s look to buy it shortly.  Once the bottom is in place, and we have confirmation, look to buy the stock and long-dated call options.