Global tobacco giant Philip Morris International (PM 2.63%) is uniquely positioned in the U.S. marketplace, as its IQOS heated tobacco cigarette alternative is the only electronic cigarette currently approved for sale while having also earned a reduced-risk label from the Food and Drug Administration.

Yet traditional cigarettes still represent the majority of its revenue, and that industry remains in a secular decline. Although tobacco is supposed to be recession-proof, Philip Morris stock is down 13% year to date.

With a lot of ways this can go for the tobacco stock, let's look at whether Philip Morris is a buy.

Couple with an IQOS electronic cigarette

Image source: Philip Morris International.

Smoking the competition

The IQOS has front-runner status because of the FDA's stamps of approval, but heated tobacco is so new to the U.S. market that it doesn't show up as much of a factor right now, and despite all of the troubles Juul Labs has had over the past year or so, it remains the leading electronic cigarette

The Juul e-cig has a 58% share, according to Nielsen, though that's well off the 75% share it held in November 2018. Yet Vuse from British American Tobacco's Reynolds American unit is still a distant second, with 22%, although its sales have been soaring of late.

Philip Morris also needs to contend with other forms of smoking alternatives, such as snus, nicotine pouches, and tobacco-free pouches. Swedish Match, for example, has also earned a reduced-risk label from the FDA for its General brand of snus, a moist powdered tobacco typically sold in small pouches that are stuck between the lip and gum. They're one of the fastest-growing segments in the tobacco industry, though coming from a small base.

A heated battle

The IQOS has potential to be disruptive to the U.S. tobacco market, but it and Altria (MO 0.85%), which leads the commercialization effort of the e-cig here, are slow-walking its rollout. The device was only in 700 stores in three markets as of the end of August, and the company says it will be another 18 months before it's introduced into four new markets.

Being cautious has its benefits, but Altria may find it difficult to get consumers to switch if they're already switching from Juul to Vuse. Sales of the latter surged 83% in the four-week period ending July 25, according to Goldman Sachs analyst Bonnie Herzog, which could allow British American's Vuse to eventually become the dominant smoking alternative. It's also waiting for the FDA to sign off on the device.

Furthermore, British American is suing both Philip Morris and Altria over the IQOS, saying the heated tobacco unit's holder violates the patents for its own heat-not-burn device called glo. It has filed suit in both the U.S. and before the International Trade Commission. If successful, the suit could result in a ban on the importation of the IQOS here.

A dividend to savor

Despite the challenges, Philip Morris International does look like an attractive investment. Its global footprint gives it plenty of geographic diversification, particularly in countries where there is not so much heavy-handed regulation.

The tobacco giant's commitment to a smoke-free future is also commendable, even though anti-smoking activists don't see the company as sincere. It has spent billions of dollars on developing a broad portfolio of next-generation products and has the resources to meet the regulatory challenges it will face.

The stock trades at 13 times next year's earnings estimates and sports an annualized dividend of $4.80 per share that's currently yielding 6.5%. Management is guiding adjusted full-year earnings to come in between $5.00 and $5.07 per share, which at the midpoint is almost 8% above the year-ago results but on a currency-adjusted basis represents an increase of between 3.5% and 5%.

That makes Philip Morris International's stock a buy.