INVESTMENT ANALYSIS: PHILIP MORRIS COMPANIES INC.
Company: The Philip Morris Companies Inc.
Major Industries: Tobacco, Processed Foods, and Beer.
Summary of Recommendations and Conclusions
The Philip Morris Companies Inc. is a strong firm with a solid financial performance record. The company implemented a diversification (away from tobacco products) strategy several years ago, and the implementation has, thus far, been quite successful. The problem is that the company, in 1992, continues to rely heavily on tobacco products for revenues and to rely on those products even more heavily for profits. Considering the threat to tobacco products in the United States, this reliance constitutes a significant risk for the company. Of even greater immediate importance is the product liability case against a tobacco manufacturer that is currently being deliberated by the United States Supreme Court. An adverse finding from the perspective of the tobacco industry in this case would likely be devastating for all manufacturers of tobacco products. Thus, prudence dictates against a recommendation to invest in the common stock of the Philip Morris Companies Inc. prior to the Supreme Court ruling expected in late summer 1992.
Description of Company and Industry,
The Philip Morris Companies Inc. is the twelfth largest corporation in the United States. The company was founded in 1847 as a tobacco business (Moskowitz, Katz, and Levering, 1986, p. 784). Tobacco remains an important segment of the firm's business in the early 1990s (Dowd, 1991a, p. 318). In the early 1990s, the company actively participates in three industries tobacco, processed foods, and beer.
When the handwriting began to appear on the wall for cigarette smoking in the United States, Philip Morris adopted and implemented a series of aggressive diversification strategies. The first major diversification strategy was into the beer industry, where they ...