PHILIP MORRIS 3/29/94 Stock Latest 52 week YTD Pr Div Gross Rating Price --- Range --- Chg Rate Yield Philip Morris Companie RL 51.25 65-45 -8 2.76 5.4 Est. - Interim EPS - -EBITDA 94- FY/IP EPS93 EPS94 PE94 --Next- -YrAgo- per/sh p/e MO 12/01Q 4.58R 5.30 9.7 n/a n/a n/a n/a PHILIP MORRIS (MO) $51 1/4 1994 $5.30 1995 $5.95. U.S. REC. LIST HIGHLIGHTS: 1. February supermarket data continued to show very strong market share gains for Marlboro and Philip Morris overall. 2. Analysts' confidence in their estimates of $5.30 for 1994 and $5.95 for 1995 remains strong despite the recent rise in concern about regulation. 3. Stock is priced at only 9.7X the 1994 earnings estimate with a 5.4% yield and is discounting an extremely poor U.S. cigarette outlook. ADDITIONAL DETAILS: 1. CONSUMPTION TRENDS - February data continued to show a strong market share gain by Marlboro and Philip Morris as a whole. Table 1 below shows that during the latest 12-week period ending February 27, 1994, Marlboro gained 3.5 share points versus a year ago to reach 22.7% of industry supermarket sales. Share of Philip Morris brands overall increased 4.4 percentage points to 41.9% (this excludes company produced private labels.) The Marlboro and total company share gains were even stronger during the latest 4 week period. Marlboro's market share has increased to more than 23% from a low of 19% a year ago. Table 1 Market Share Trends In Large Supermarkets Philip Morris Chg. Marlboro Chg. Full Year 1993 39.9% +2.3 pts 21.6% +1.7 pts. Latest Six Months 41.3% +3.6 pts 22.7% +2.7 pts. Latest Three Months 41.9% +4.4 pts 23.1% +3.5 pts. Source: Information Resources, Inc. InfoScan Review 2. IMPROVED FUNDAMENTALS - Analysts increased their earnings estimates last month on indications that fundamentals have strengthened in Philip Morris' U.S. cigarette operations. Both the January and February consumption data are consistent with this view. Specifically, analysts continue to believe that PM USA unit volume will increase 3-4% in 1994 and that product mix will improve as smokers continue their return to premium brand already evidenced. Net pricing should be only moderately lower, down 5-6% compared with previous expectation of a double-digit decline, because of reduced price discounting. 3. TOBACCO CONTROVERSY - Recent developments have not been kind to the tobacco industry. Even so, analysts still believe that excise taxes will emerge from Congress lower than as proposed by President Clinton and that it is improbable that the FDA will be given authority to regulate and ban cigarettes. The proposed OSHA regulations that could ban smoking in bars and restaurants is a difficult battle for the industry that is hard to evaluate. Still, investors appear to be overreacting. It is worth noting that Philip Morris would earn $3.30 in 1994 and be capable of 13% growth after 1994 even if U.S. cigarette operations fell to a break-even level. This means that the whole company is selling for 15.5x the 1994 earnings of the non-U.S. cigarette operations. The U.S. cigarette business earned $2.8 billion before taxes last year. 4. INVESTMENT RATING - Philip Morris stock is selling at only 9.7X 1994 earnings and is at a 35% discount to the S&P 500 with a 5.4% yield. Analysts believe that management is very dissatisfied with stock price performance and will continue actions to improve shareholder value. The company has become very active buying shares since resuming its repurchase program last month. Analysts believe that this program is now more than 20% complete and that, around mid-year, management is likely consider another that could amount to repurchase of as much as 7-10% of the total stock outstanding over a multi-year period. In addition, management has indicated that additional asset sales aimed at improving profitability of the company's food and beverage operations are under consideration. On balance, the outlook continues be strong and analysts believe that the stock can still appreciate to $70 within 12 months.