Philip Morris - A Stock For Wealth Or Poverty (MO) Message Board

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Non-Tech : Philip Morris - A Stock For Wealth Or Poverty (MO)

MO 58.69

+0.6%

Nov 26 3:59 PM EST

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To: Rarebird who wrote (1380)	4/14/1998 11:21:00 AM
From: RWilson	Read Replies (1) of 6439

RB: i am neither upset nor angry nor panicking! I am simply reviewing fundamentals and arriving at several startling realizations. 1. SOME LEGISLATION WILL OCCUR. You don't have to speculate, you just have to pay attention to what's happening. Clinton has capitulated and Gingrich & Co. have walked away. The deal that overwhelmingly passed congress is so onerous to the indutry and yet still was deemed unacceptable to Koop and Kessler. 2. Conclusion: Relative to the June 20 settlement the legislation will have tougher finacial consequences, broader FDA regulation and less civil liability protection. 3. This is a tobacco company. Food is not a reason to own this stock.2/3s income is tobacco. There are many--most--packaged food compnaies that are better performers than Kraft. '97 income increase domestic of 9%, and 1.8% Int'l. (eps growth). '97 /'98 estimates not much better. Both less than 10% EPS gains. US tobacco business is 42% of tobacco income and almost a third of total bottom line. Last year was a 22% decline due to State settlement charges--) What will the US growth rate be going fwd? This is the $64 Q and THAT is where the speculation lies!! The market may be prudent top pay nothing for US business prospects. (You are being a tad generous with multiple for MO's food businesses.) Without US tobacco income the multiple is 18x "adjusted" 98 eps. Not unreasonable considering that's a large premium to growth and in line with other 8-10% growers, like BUD. 4. Mo's 10K discuses the negative volume impacts of excise tax hikes. We know more are on their way it's a q of how much. Since EPS momentum is not likely, the ONLY way for multiple expansion is clarity on liabilty front. The analysts I am speaking to are short-term oriented. You are right. They are also investment banking oriented which makes them tend to be overly bullish not the other way around. When pressed to really defend their BUY recommendations they resort to pointing to the yield and yesterday's reasons for owning the company before they settled and oviated their principled stance defending themselves. The lack of uncertainty re EPS growth, liabilty and taxes is far worst than anytime throughout the 1980s. The high absolute multiple is due to the broad market which makes the shares relativley cheap next to Colgate and Gillette but that is market risk not company specific. Excise taxes will hurt volume next year. By how much we don't know. I agree that downside is limited. But so is upside. Read the WSJ lead editorial of 4-2-98. Excellent summary of current status. If you think that an someone who has analyzed the industry and MO in particular thru court proceedings and tax legisaltion processes and met with management over a 100 times has no edge over a neophyte, so be it. I am saying to youthat MOST WALL STREET ANALSYTS ARE BULLISH ! Even the "downgrades" are hedged by bullish scenarios. I generally SELL on upgrades and buy on downgrades. Whadaythink? This is all conjecture, Rarebird. Investing by definition is predicting the future. When outlooks get real fuzzy so do valuations. If it's a cloud that'll pass it's an OPPORTUNITY. I think this cloud is gonna stick and EPS will be low to flat for some time. I hope I'm wrong. Zeolotry has enetered the picture and the tobaco co's are hardly the industry to gain public support. RW RW

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