Bank of America Upgrades Philip Morris International (PM)

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.

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  • 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.