Valuation, current dividend yield make shares a buy.
Bank of America upgraded shares of Philip Morris International (PM) to a buy from neutral. The bank also reiterated an existing price target of $96, 23 percent higher than where shares currently trade.
The upgrade comes as fears that the tobacco industry in the United States will have more oversight and regulation following a series of illnesses related to vaping products. However, Philip Morris has little exposure to the U.S. market.
Further, the end of merger talks with Altria (MO), which was weighing on Philip Morris shares, is likely to cause a move higher. With shares down double-digits in the past few months, and 7 percent in the past year, the low price on the highly profitable company has pushed the dividend yield north of 6 percent.
Shares traded at 14 times earnings, and has grown earnings at 5.5 percent in the past year amidst the vaping headwinds that have weighed on the sector.
Action to take: On a valuation basis, shares look reasonable up to $80, where investors can buy at an historically high dividend yield for the company.
As shares have yet to move back to their pre-merger talk highs, however, it’s unlikely that shares will move higher quickly, meaning that options traders may want to look elsewhere for a fast trade, such as one of the pot stocks instead.