Philip Morris International Earnings: Disappointing Guidance Overshadows Future Benefits of Iluma

Philip Morris International reported first-quarter results that were in line with our expectations, but management guided to slightly weaker full-year earnings growth than we had forecast. While this may be disappointing to investors, the spending behind the rollout of Iluma, Philip Morris’ latest iteration of its Iqos heated tobacco platform, and the associated impact on its margin should drive medium-term growth, allowing Philip Morris to compound its high returns on capital, which have historically been in excess of 30%, for years to come. Therefore, we are maintaining our $103 fair value estimate and wide moat rating, and regard the stock as being slightly undervalued at the close of trading on April 21.