Stock Analysis on Net
Stock Analysis on Net

Philip Morris International Inc. (NYSE:PM)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Philip Morris International Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 9.04%
01 FCFF0 8,924
1 FCFF1 9,148 = 8,924 × (1 + 2.50%) 8,389
2 FCFF2 9,439 = 9,148 × (1 + 3.19%) 7,939
3 FCFF3 9,806 = 9,439 × (1 + 3.88%) 7,563
4 FCFF4 10,254 = 9,806 × (1 + 4.57%) 7,253
5 FCFF5 10,794 = 10,254 × (1 + 5.26%) 7,001
5 Terminal value (TV5) 300,409 = 10,794 × (1 + 5.26%) ÷ (9.04% – 5.26%) 194,848
Intrinsic value of Philip Morris International Inc. capital 232,991
Less: Debt, including finance lease obligations (fair value) 46,967
Intrinsic value of Philip Morris International Inc. common stock 186,024
 
Intrinsic value of Philip Morris International Inc. common stock (per share) $119.64
Current share price $129.54

Based on: 10-K (reporting date: 2023-12-31).

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Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Philip Morris International Inc., cost of capital

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Value1 Weight Required rate of return2 Calculation
Equity (fair value) 201,413 0.81 10.42%
Debt, including finance lease obligations (fair value) 46,967 0.19 3.14% = 4.04% × (1 – 22.28%)

Based on: 10-K (reporting date: 2023-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,554,833,410 × $129.54
= $201,413,119,931.40

   Debt, including finance lease obligations (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (22.40% + 19.30% + 21.80% + 21.70% + 23.20%) ÷ 5
= 22.28%

WACC = 9.04%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Philip Morris International Inc., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Interest expense 1,526 768 737 728 796
Net earnings attributable to PMI 7,813 9,048 9,109 8,056 7,185
 
Effective income tax rate (EITR)1 22.40% 19.30% 21.80% 21.70% 23.20%
 
Interest expense, after tax2 1,184 620 576 570 611
Add: Dividends declared 8,012 7,841 7,665 7,405 7,212
Interest expense (after tax) and dividends 9,196 8,461 8,241 7,975 7,823
 
EBIT(1 – EITR)3 8,997 9,668 9,685 8,626 7,796
 
Short-term borrowings 1,968 5,637 225 244 338
Current portion of long-term debt 4,698 2,611 2,798 3,124 4,051
Long-term debt, excluding current portion 41,243 34,875 24,783 28,168 26,656
Total PMI stockholders’ deficit (11,225) (8,957) (10,106) (12,567) (11,577)
Total capital 36,684 34,166 17,700 18,969 19,468
Financial Ratios
Retention rate (RR)4 -0.02 0.12 0.15 0.08 0.00
Return on invested capital (ROIC)5 24.53% 28.30% 54.72% 45.47% 40.05%
Averages
RR 0.06
ROIC 38.61%
 
FCFF growth rate (g)6 2.50%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

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2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 1,526 × (1 – 22.40%)
= 1,184

3 EBIT(1 – EITR) = Net earnings attributable to PMI + Interest expense, after tax
= 7,813 + 1,184
= 8,997

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [8,997 – 9,196] ÷ 8,997
= -0.02

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 8,997 ÷ 36,684
= 24.53%

6 g = RR × ROIC
= 0.06 × 38.61%
= 2.50%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (248,380 × 9.04% – 8,924) ÷ (248,380 + 8,924)
= 5.26%

where:

Total capital, fair value0 = current fair value of Philip Morris International Inc. debt and equity (US$ in millions)
FCFF0 = the last year Philip Morris International Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Philip Morris International Inc. capital

FCFF growth rate (g) forecast

Philip Morris International Inc., H-model

Microsoft Excel
Year Value gt
1 g1 2.50%
2 g2 3.19%
3 g3 3.88%
4 g4 4.57%
5 and thereafter g5 5.26%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 2.50% + (5.26% – 2.50%) × (2 – 1) ÷ (5 – 1)
= 3.19%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 2.50% + (5.26% – 2.50%) × (3 – 1) ÷ (5 – 1)
= 3.88%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 2.50% + (5.26% – 2.50%) × (4 – 1) ÷ (5 – 1)
= 4.57%