A recent discounted cash flow (DCF) valuation of Philip Morris International Inc. (NYSE:PM) indicates a fair value of US$172 per share, suggesting a potential undervaluation of 47% compared to its current share price of US$90.20. The finding was reported today, Thursday, and it significantly exceeds market expectations.
The DCF model used in the valuation employs a two-stage growth model, which assumes an initial high growth period followed by a more stable one. This method discounts future cash flows to present-day dollars, providing an estimate of the company's intrinsic value. The calculations for this valuation are either based on analyst estimates or extrapolated from prior free cash flow (FCF).
This valuation has brought to light a significant discrepancy between the perceived and intrinsic value of Philip Morris' shares. The DCF valuation is 56% above the analyst price target of US$110 for the tobacco company, indicating a potential gap in market expectations.
It's important to note that while the DCF model can provide valuable insights into a company's value, it does have its limitations. It relies heavily on assumptions about future performance and growth, which can be difficult to predict accurately. Yet, despite these caveats, the substantial difference between the DCF valuation and current market prices could prompt further analysis and discussion among investors and analysts.
InvestingPro Insights
Drawing upon real-time data from InvestingPro, Philip Morris International Inc. (NYSE:PM) has been experiencing accelerating revenue growth, which aligns with the optimistic DCF valuation presented. This growth, coupled with the company's impressive gross profit margins, could potentially justify the significant gap between the DCF valuation and current market prices.
Moreover, it's noteworthy to mention that Philip Morris has a strong history of maintaining dividend payments, having raised its dividend for 15 consecutive years. This demonstrates a commitment to returning value to shareholders, which further supports the potential undervaluation identified.
As per InvestingPro Tips, the company operates with a high return on assets, indicating efficient use of resources. However, a cautionary note is warranted as the company's short-term obligations exceed its liquid assets, suggesting potential liquidity issues.
InvestingPro, offering a wealth of additional insights and tips for numerous companies, currently lists 12 additional tips for Philip Morris International Inc. (NYSE:PM). This makes it a valuable resource for investors seeking to make informed decisions.
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