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Philip Morris International Inc PM

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Limited Risk to Valuation as PMI's Bid for Vectura Goes to Auction

Analyst Note

| Philip Gorham, CFA, FRM |

The battle between Philip Morris International, or PMI, and private equity group Carlyle to acquire the U.K.-based respiratory drug maker Vectura (not covered) will go to a 5-day auction beginning Aug. 11. PMI's latest cash offer of 165 pence per share values Vectura at 23.5 times adjusted 2022 earnings, and 5.4 times revenue. This does not look out of whack with historical deals in the drug delivery sector, according to Pitchbook data, although PMI's commitment to allow Vectura to operate as an autonomous unit may limit near-term efficiencies, and a slightly higher bid would likely have no impact on our $108 fair value estimate for PMI. We still regard the company as being slightly undervalued, and its market multiple at the high end of the tobacco group is justified by its leadership position in cigarette alternatives.

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Company Profile

Business Description

Philip Morris International is a leading international tobacco company engaged in the manufacture and sale of cigarettes and other nicotine-containing products in markets outside the United States. Through multidisciplinary capabilities in product development, state-of-the-art facilities, and scientific substantiation, the company aims to ensure that its smoke-free products meet adult consumer preferences and rigorous regulatory requirements. Management's vision is that these products ultimately replace cigarettes.

120 Park Avenue
New York, NY, 10017
T +1 917 663-2000
Sector Consumer Defensive
Industry Tobacco
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type High Yield
Employees 71,000