BofA Upgrades Philip Morris, Downgrades Altria

BofA Merrill Lynch’s Lisa K. Lewandowski said that fundamentals of domestic tobacco stocks are likely to continue to be strong, while suggesting a switch from Altria Group Inc MO to Philip Morris International Inc. PM

Altria Group

Analyst Lisa Lewandowski downgraded the rating for Altria Group from Buy to Neutral, while maintaining a price objective of $66. She said that the stock’s P/E valuation “has become stretched vs. historical norms.” The company’s positives continued to be its defensive nature, quality fundamentals, commitment to shareholders and high market share.

Philip Morris International

The analyst upgraded the rating for Philips Morris International from Neutral to Buy, while raising the price objective from $93 to $110. The company has the potential for continue to generate FX neutral earnings growth. FX pressure is likely to be less severe than was previously anticipated.

“Despite lingering global economic concerns, PM see easing category volume declines (World less US/China) in 2016 due to moderating illicit trade, market share gains, and lack of a disruptive tax increase in any major tobacco mkt this year,” Lewandowski commented.

The company’s margins could expand further if forex headwinds, and/or volumes or pricing are better than expected.
The EPS estimates for 2016, 2017 and 2018 have been raised from $4.30 to $4.51, from $4.72 to $5.02 and $5.17 to $5.50, respectively, to reflect a lower FX impact.