Fully Updated Philip Morris International Analysis Per 2011 Annual Report, With DFCF Calculation,
Introduction/Historical Notes/Preliminary Gloating: Guess what I got in the mail yesterday?….my 2011 Philip Morris International annual report, that’s what! Philip Moris International (“PMI”) (ticker PM) is, along with ExxonMobile, my longest-term holding. I’ve owned Exxon since before it merged with Mobile, and I have owned Philip Morris International since before Philip Morris spun off Kraft, sold a portion of its interest in Miller to SAB (creating SAB Miller, which it still owns over 20% of), changed its name to Altria, and finally spun off Philip Morris International in 2008. Yup, I have owned shares in these companies continuously since 1998, or for going on 14 years now. I also added to my PMI position during the financial crisis, and during the entire past 14 years I have been reinvesting my dividends. It has been a pretty darn successful inflation-adjusted investment for me, epecially in comparison with the performance of the S&P during this time period. PMI used to be my largest single holding, but because I upped my stakes in other companies during the last two years, it is now just in the top four. Pish. I am now updating my PMI analysis, both my mathematical free cash flow analysis and my thoughts on the 2011 annual report, and analysis of its prospects. (To some extent these feed into each other, because future prospects go into setting some of the DFCF assumptions.)
Conclusions: I’ll spare you the agony of waiting until the end for my conclusions: PMI is still very, very investable, and surprisingly is most likely a very good buy at under $80 to $85/share, even after the run-up. I should strongly consider adding, particularly on weakness. (It’s at $87 now.) Last year’s results were abnormally good because of a one-time (and likely temporary) share increase in Japan, the result of last’s year’s earthquake/tsunami temporarily knocking out production at a major competitor, and PMI’s excellent response. Europe was a drag, and will continue to be. 2012 is likely to disappoint in comparison with 2011. Litigation risk is much bigger than I think many “I used to own Altria” investors realize, and may in fact be bigger than Altria’s risks, particularly if your vision extends ten or more years out.
For the full analysis, including a link to my DFCF analysis, see here.
Fool.com additional note: I entered this in CAPS long after my initial purchases and long after I purchased during the financial crisis.