Outstanding Business Tycoon Stan Druckenmiller is Expanding His Investment Holdings
millionaire Stan Kruger labeled the recent surge in Nvidia's value. The retired asset manager placed a substantial wager on artificial intelligence (AI), reaping substantial profits for his portfolio. Currently, he's invested in shares of a company operating in a different sector: Philip Morris International (PM), which represents around 3% of his portfolio. Moreover, Kruger has also procured a call option to further boost his belief in the company's potential success.
What draws Kruger to Philip Morris International stock? I believe it boasts robust revenue growth, consistent dividend earnings, and a robust yet undervalued business model. Here's why Kruger made this investment a priority.
Swelling Waves in Healthier Nicotine Products
Although Philip Morris International is synonymous with tobacco, it has gradually shifted its focus beyond cigarettes since parting ways with Philip Morris USA (now known as Altria Group) 15 years ago. In the last quarter, revenue from smoke-free products accounted for no less than 38% of the company's total revenue, amounting to approximately $3.76 billion. This remarkable growth stems from its humble beginnings in the not-too-distant past.
Its two most successful products include IQOS heat-not-burn devices and Zyn nicotine pouches. IQOS serves as a health-conscious alternative to traditional cigarette smoking, much like electronic vapor devices, and has garnered immense popularity in Europe and Japan. Volume sales for both IQOS and related heat-not-burn devices experienced a year-over-year surge of 13.9% through the first nine months of 2024, reaching an impressive 104 billion units. Though still smaller than Philip Morris's cigarette sales, which totaled 464 billion units over the same period, it has rapidly gained ground.
Zyn nicotine pouches represent a smaller, yet rapidly expanding business for Philip Morris. During the last quarter, shipment volumes in the United States swelled to 149 million cans, a substantial increase compared to 105 million for the same period in 2023. This brand has grown so rapidly that Philip Morris has grappled with supply shortages. While supply chain snags have begun to ease, they still hold back Zyn's full potential. By 2025 and 2026, the company hopes to realize these restrictions' true impact, providing an additional boost to its smoke-free revenue stream.
Pricing Power and Demographic Trends
Historically, Philip Morris's tobacco business is still thriving. In contrast to other tobacco firms with exposure to regions with stagnant or dwindling populations, Philip Morris International maintains operations in countries with expanding populations, safeguarding its shipment volumes even as international cigarette smoking rates decrease.
By the end of 2024, cigarette volume growth for the company was a mere 0.5%, an impressive figure compared to its industry peers. As the global cigarette smoker population continues to shrink, Philip Morris has the capacity to grow sales through continuous price hikes, which do not significantly impact shipment volume. In 2022, the firm increased cigarette pricing by an average of 5%. That figure rose to 8.9% in 2023, and so far in 2024, the company has raised pricing by a mean of 8.8%. These steps have translated into remarkable revenue growth and profitability for the combustible product line. In tandem, the smoke-free business and leadership team anticipate nearly 10% revenue growth this year.
Is It Worth Buying the Stock?
Since Kruger's purchase of Philip Morris International, the stock's value has soared, achieving a total return of 37% over the last six months. This impressive performance has outpaced the market significantly.
Despite this surge, Philip Morris International's forward price-to-earnings ratio (P/E) remains at 20, well below the S&P 500 average. Its yield hovers around 4%, providing investors with lucrative dividend income yearly. Revenue and earnings per share (EPS) predict stable growth over the long term as Philip Morris continues increasing cigarette pricing and adding customers to its smoke-free product line.
If revenue maintains its 10% annual growth pace, accompanied by ample profit margins, I firmly believe that Philip Morris International stock has ample room for expansion. Coupled with substantial dividend income, it comes as no surprise that Stan Kruger integrated the stock into his portfolio earlier this year.
Given Stan Kruger's belief in the company's robust revenue growth, consistent dividend earnings, and undervalued business model, he is strategically investing in call options for Philip Morris International, aiming to further boost his portfolio's potential success. With the surge in revenue from smoke-free products like IQOS and Zyn, Philip Morris International's unique pricing strategy, and a dividend yield of 4%, it has become an attractive investment opportunity for Kruger and potentially other finance-conscious individuals.
