Philip Morris International Inc.PMNYSE
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DCF Valuation
DCF Valuation Summary
Strong Buy
Fair Value: $237.02 per share(market-calibrated)
+32.6%
Upside to Fair Value
Current
$178.78
Pure Model
$252.63
Fair Value
$237.02
Bull Case
$313.93
Bear Case
$201.52
Market Reality Check
Model Terminal Growth
2.50%
Market-Implied Growth
0.50%
Calibrated Growth
2.00%
Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $252.63.
What's Driving This Ratingfor PM
↓
CapEx normalizing toward maintenance
Historical CapEx is 3.03% of revenue (heavy investment phase). Model fades this to 3.00% by Year 10, freeing up ~$20M in annual FCF. This is the biggest driver of long-term cash flow improvement.
✓
Premium margins already priced in
EBIT margin of 37.76% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.
→
Moderate revenue growth
Analyst consensus projects 7.80% revenue growth, fading to 2.50% by Year 10. Revenue reaches $58.1B (vs $40.6B today).
🎯
Market pricing in lower growth than model
The market implies only 0.50% perpetual growth — 200bps below the model's 2.50%. This suggests the market sees headwinds or risks not in the model.
✓
Strong cash flow conversion
Year 10 FCF/EBITDA conversion of 75.21% indicates efficient cash generation. FCF reaches $18.1B by Year 10 (31.09% FCF margin).
Weighted Average Cost of Capital (WACC)
Cost of Equity (CAPM)
Risk-Free Rate (Rf)4.50%
Beta (β)0.41
Market Risk Premium4.50%
*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)
Cost of Equity (Re)6.34%
Cost of Debt
Pre-tax Cost of Debt2.49%
Tax Rate18.54%
After-tax Cost of Debt2.03%
Equity Weight (E/V)84.63%
Debt Weight (D/V)15.37%
WACC Calculation
WACC = (E/V × Re) + (D/V × Rd × (1-Tc))
WACC = (84.63% × 6.34%) + (15.37% × 2.03%)
= 5.68%
10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)
| Year | Year 1 | Year 3 | Year 5 | Year 7 | Year 10 |
|---|---|---|---|---|---|
| Revenue | $43.8B | $49.9B | $51.3B | $53.9B | $58.1B |
| EBIT | $16.5B | $18.8B | $19.4B | $20.4B | $21.9B |
| Tax | $3.1B | $3.5B | $3.6B | $3.8B | $4.1B |
| NOPAT | $13.5B | $15.3B | $15.8B | $16.6B | $17.9B |
| + Depreciation | $1.6B | $1.8B | $1.8B | $1.9B | $2.1B |
| - Capex | $1.3B | $1.5B | $1.5B | $1.6B | $1.7B |
| - Δ NWC | $317M | $350M | $125M | $132M | $142M |
| Free Cash Flow | $13.4B | $15.3B | $15.9B | $16.8B | $18.1B |
| Discount Factor | 0.946 | 0.847 | 0.759 | 0.679 | 0.576 |
| Present Value | $12.7B | $12.9B | $12.1B | $11.4B | $10.4B |
FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital
Terminal Value Calculation
Perpetuity Growth Method
Year 10 FCF$18.1B
Terminal Growth Rate2.50%
WACC5.68%
TV = FCF₁₀ × (1+g) / (WACC-g)
Terminal Value$582.2B
PV of Terminal Value$335.1B
Exit Multiple Method
Year 10 EBITDA$24.0B
Exit Multiple (EV/EBITDA)20.0x
TV = EBITDA₁₀ × Exit Multiple
Terminal Value$480.0B
PV of Terminal Value$276.3B
Valuation Summary
Perpetuity Growth Method
PV of Projected FCFs$118.3B
PV of Terminal Value$335.1B
Enterprise Value$453.4B
(-) Net Debt$44.0B
Equity Value$409.4B
Shares Outstanding1.5B
Price per Share$272.17
Exit Multiple Method
PV of Projected FCFs$118.3B
PV of Terminal Value$276.3B
Enterprise Value$394.6B
(-) Net Debt$44.0B
Equity Value$350.6B
Shares Outstanding1.5B
Price per Share$233.08
Pure Model Fair Value
$252.63
Average of perpetuity growth and exit multiple methods (before market calibration)
Sensitivity AnalysisPrice per Share
| WACC ↓ / Growth → | 1.50% | 2.00% | 2.50% | 3.00% | 3.50% |
|---|---|---|---|---|---|
| 3.68% | $363.89 | $370.96 | $355.01 | $339.80 | $325.30 |
| 4.68% | $275.79 | $299.14 | $333.21 | $339.80 | $325.30 |
| 5.68% | $225.14 | $237.02 | $252.63 | $274.06 | $305.34 |
| 6.68% | $190.80 | $197.72 | $206.30 | $217.21 | $231.55 |
| 7.68% | $165.25 | $169.65 | $174.89 | $181.25 | $189.14 |
How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.
Scenario Analysis
Bear Case
$201.52
12.7% vs current
- • -25% vs analyst consensus
- • Terminal growth: 2.0%
- • Beta: 0.51
Base Case
$252.63
41.3% vs current
- • Analyst consensus
- • Terminal growth: 2.5%
- • Beta: 0.41
Bull Case
$313.93
75.6% vs current
- • +25% vs analyst consensus
- • Terminal growth: 3.0%
- • Beta: 0.35
Key Assumptions & Drivers• Consumer Defensive Sector
Growth Assumptions (Select Years)
Year 1 Revenue Growth7.80%
Year 3 Revenue Growth7.54%
Year 5 Revenue Growth2.50%
Year 7 Revenue Growth2.50%
Year 10 Revenue Growth2.50%
Terminal Growth Rate2.50%
Margin & Efficiency
Current EBIT Margin37.76%
Tax Rate18.54%
Historical Capex / Rev3.03%
Terminal Capex / Rev3.00%
NWC / Revenue10.00%
Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.
Institutional-Grade Methodology
Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta
Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 20x EV/EBITDA (Consumer Defensive sector)
This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.