Fool.com retail editor/analyst Austin Smith makes a strong case for why Philip Morris International (PM 0.74%) is a great company at a fair price. With shares trading at 18 times earnings and an estimated growth rate of 9% to 10% this year, potential investors might question the logic in paying a premium for a company with earnings right in line with the Dow Jones Industrial Average and the S&P 500, especially considering its reported 1.2% volume decline over the past year, and the continued softness of the European market.
At a glance, certainly there's plenty of reason for doubt, but there's more going on here than meets the eye. First of all, that 1.2% decline is not a genuine representation of volume. Last year, PM volume skyrocketed post-tsunami, with Japan Tobacco temporarily out of the picture as a competitor. Volume was therefore disproportionate to norms, and adjusted for that influence it actually grew 1.4% this year.
The situation in Europe is more difficult to explain away, and may very well continue down the same path with little that Philip Morris can do to reverse trends. However, to dwell on Europe is to ignore the Asia division, where volume grew a staggering 7.4%, and that would be a mistake. The swelling Asian market will more than make up for losses in Europe in the future, and this is growth that's sustainable, without the usual cause for concern about saturating markets. Why? Because in Asia, the middle class is rising, creating a brand-new (and rapidly growing) addressable market. For Philip Morris, the expanding global middle class means plenty of customers and plenty of room for expansion, and it's only just begun.
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