Philip Morris International (NYSE: PM) and Reynolds American (NYSE:RAI) are both large-cap consumer staples companies, but which is the superior business? We will contrast the two businesses based on the strength of their valuation, profitabiliy, analyst recommendations, institutional ownership, earnings, dividends and risk.

Volatility & Risk

Philip Morris International has a beta of 0.94, indicating that its stock price is 6% less volatile than the S&P 500. Comparatively, Reynolds American has a beta of 0.41, indicating that its stock price is 59% less volatile than the S&P 500.

Earnings and Valuation

This table compares Philip Morris International and Reynolds American’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Philip Morris International $26.67 billion 6.93 $11.50 billion $4.52 26.33
Reynolds American $12.54 billion 7.42 $6.07 billion $2.31 28.25

Philip Morris International has higher revenue and earnings than Reynolds American. Philip Morris International is trading at a lower price-to-earnings ratio than Reynolds American, indicating that it is currently the more affordable of the two stocks.

Dividends

Philip Morris International pays an annual dividend of $4.16 per share and has a dividend yield of 3.5%. Reynolds American pays an annual dividend of $2.04 per share and has a dividend yield of 3.1%. Philip Morris International pays out 92.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Reynolds American pays out 88.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Philip Morris International has raised its dividend for 9 consecutive years and Reynolds American has raised its dividend for 7 consecutive years. Philip Morris International is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares Philip Morris International and Reynolds American’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Philip Morris International 9.40% -65.44% 19.37%
Reynolds American 26.23% 15.64% 6.54%

Institutional and Insider Ownership

72.3% of Philip Morris International shares are owned by institutional investors. Comparatively, 46.3% of Reynolds American shares are owned by institutional investors. 0.2% of Philip Morris International shares are owned by insiders. Comparatively, 0.1% of Reynolds American shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Analyst Recommendations

This is a breakdown of current recommendations for Philip Morris International and Reynolds American, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Philip Morris International 0 5 7 0 2.58
Reynolds American 0 8 1 0 2.11

Philip Morris International presently has a consensus price target of $117.82, suggesting a potential downside of 0.99%. Reynolds American has a consensus price target of $58.88, suggesting a potential downside of 9.78%. Given Philip Morris International’s stronger consensus rating and higher probable upside, equities research analysts plainly believe Philip Morris International is more favorable than Reynolds American.

Summary

Philip Morris International beats Reynolds American on 12 of the 17 factors compared between the two stocks.

About Philip Morris International

Philip Morris International Inc. is a holding company. The Company is engaged in the manufacture and sale of cigarettes, other tobacco products and other nicotine-containing products in markets outside of the United States. Its segments include European Union (EU); Eastern Europe, Middle East & Africa (EEMA); Asia, and Latin America & Canada. The Company’s portfolio of international and local brands is led by Marlboro. Its mid-price brands are L&M, Lark, Merit, Muratti and Philip Morris. Its other international brands include Bond Street, Chesterfield, Next and Red & White. The Company also owns various local cigarette brands, such as Dji Sam Soe, Sampoerna and U Mild in Indonesia; Champion, Fortune and Jackpot in the Philippines; Apollo-Soyuz and Optima in Russia; Morven Gold in Pakistan; Boston in Colombia; Belmont, Canadian Classics and Number 7 in Canada; f6 in Germany; Delicados in Mexico; Assos in Greece, and Petra in the Czech Republic and Slovakia.

About Reynolds American

Reynolds American Inc. (RAI) is a holding company. The Company’s segments include RJR Tobacco, which consists of the primary operations of its subsidiary, R. J. Reynolds Tobacco Company; Santa Fe, which consists of the primary operations of its subsidiary, Santa Fe Natural Tobacco Company, Inc., and American Snuff, which consists of the primary operations of its subsidiary, American Snuff Company, LLC. The RJR Tobacco segment manages contract manufacturing of cigarettes and tobacco products through arrangements with British American Tobacco p.l.c. affiliates, and manages the export of tobacco products to certain United States territories, the United States duty-free shops and the United States overseas military bases. The American Snuff segment offers adult tobacco consumers a range of segregated smokeless tobacco products, primarily moist snuff. The Santa Fe segment manufactures and markets super-premium cigarettes and other tobacco products under the NATURAL AMERICAN SPIRIT brand.

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