Sergio Marchionne, who is a member of Philip Morris International Inc. (NYSE:PM)’s Board of Directors, purchased 1,000 shares of the company’s stock on July 23rd at an average price of $89.07, according to a filing with the SEC. Marchionne now owns almost 50,000 shares of the $150 billion market cap cigarette company, which focuses on international markets; Altria Group (NYSE:MO) was formed in the split of the old Philip Morris International Inc. (NYSE:PM) to focus more on sales in the U.S.
While Philip Morris International Inc. (NYSE:PM)’s headline revenue numbers increased slightly in the second quarter of 2013 versus a year earlier, this was eaten up entirely by higher excise tax numbers and as a result the company’s gross profits and net income both declined over the same period. A roughly similar story holds if we look at its year to date income statement; considering that international markets are supposed to be an area of higher growth for the cigarette industry, this is concerning. At its current market cap Philip Morris International Inc. (NYSE:PM) trades at 17 times trailing earnings, and in value terms we’d generally look for at least moderate earnings growth at that price.
However, because cigarette companies are such prolific and reliable cash flow generators, much of the interest in these stocks comes from investors seeking high yields. Philip Morris International Inc. (NYSE:PM) does pay quarterly dividends of 85 cents per share (and has a record of increasing its dividend since it became independently traded), which at current prices results in an annual yield of 3.8%. This is actually lower than what can be found at some of the company’s peers; as a result, both income and value investors have to have at least some confidence in superior future growth numbers from Philip Morris in order to buy in our view.