Check out the latest Philip Morris earnings call transcript.
What happened
Shares of Philip Morris International (PM -2.96%) got smoked last month, sliding 23%, according to data from S&P Global Market Intelligence, as the international tobacco giant was downgraded by Credit Suisse and stood on the sidelines as domestic peer Altria (MO 1.45%) took a significant stake in JUUL Labs, the leading e-cigarette maker, shortly after that company took a large stake in Cronos Group, a Canadian marijuana grower. Philip Morris, meanwhile, said it would not get involved in the fast-growing marijuana industry.
As you can see from the chart below, the stock slid sharply in the middle of the month, starting with the Credit Suisse downgrade.
So what
Shares of Philip Morris, which manufactures and distributes cigarettes under brands including Marlboro, Parliament, and Chesterfield outside the U.S., plunged 7.7% on Dec. 18 as Credit Suisse lowered its rating from neutral to underperform. Analyst Alan Erskine said a survey showed slower-than-expected growth from Philip Morris' heat-not-burn IQOS product in Japan, a key market, and was also concerned about slowing sales growth from cigarettes. Erskine concluded that the company would have trouble delivering high-single-digit earnings growth as the company has projected, and chopped his price target from $92 to $74.
Image source: Getty Images.
This isn't the first time that IQOS challenges have plagued the stock, as the company's acknowledgement of sales challenges earlier in the year caused the stock to plunge on its first-quarter earnings report.
Philip Morris shares continued to slide in the days after that as Altria took a 35% stake in JUUL for $12.8 billion, signaling that the domestic Marlboro seller may be moving away from a planned partnership to sell IQOS products in the U.S. as JUUL has established itself as the market leader.
Now what
December concluded a rough year for Philip Morris as the stock finished 2018 down 35% as the tobacco sector broadly fell. Like the rest of the tobacco industry, Philip Morris is facing challenges from declining cigarette consumption. Investors had been hopeful that it would find success with IQOS, but results have been underwhelming thus far. Philip Morris also seems reluctant to make the kind of potentially transformative investments that Altria has made recently -- Philip Morris CEO Andre Calantzopoulos said last month that the company has no plans to get into the cannabis industry.
While Philip Morris' revenue and earnings are still growing, its valuation perhaps deserved to take a step down, as it now trades at a P/E ratio of 13. For now, investors can take some solace in its 6.8% dividend yield.
