Investors looking for the best stocks within the market may find better prospects in Philip Morris stock (NYSE: PM) compared to Union Pacific stock (NYSE: UNP). Despite being from different sectors, both companies have similar market capitalizations. However, Union Pacific has a higher valuation multiple of 6.2x revenues compared to Philip Morris’ 4.4x due to slightly superior revenue growth and profitability. In the next three years, PM is expected to outperform UNP based on historical revenue growth, stock returns, and valuation.
In terms of recent performance, PM stock has seen gains of 20% while UNP stock has seen gains of 15% from early January 2021 to now. However, both stocks have not seen consistent growth, with UNP underperforming the S&P 500 in 2021 and 2023. In a volatile macroeconomic environment with high oil prices and elevated interest rates, both stocks may face challenges but are expected to see higher levels. PM is likely to outperform UNP in the next three years, despite past inconsistencies in returns.
Union Pacific has shown slightly better revenue growth than Philip Morris, with a 7.6% average annual growth rate from 2020 to 2023. This growth has been driven by a strong recovery in demand post-pandemic and successful pricing strategies. Philip Morris, on the other hand, generates revenue from non-U.S. markets through cigarette sales and its successful smokeless tobacco product, IQOS. With recent acquisitions strengthening its position in the smokeless products market, PM is expected to see mid-single-digit revenue growth in the next three years.
In terms of profitability, Union Pacific has a higher operating margin than Philip Morris, with a margin of 38% in the last twelve months. While Union Pacific has a stronger debt position, Philip Morris has a higher cash cushion. Based on these factors, PM is expected to offer better returns over UNP in the next three years, especially considering PM’s lower valuation multiple compared to historical averages.
Overall, Union Pacific has seen slightly better revenue growth and is more profitable than Philip Morris, but PM has a stronger cash cushion. With PM trading at 4.4x revenues compared to UNP’s 6.2x, PM is expected to outperform UNP in the next three years with the continued expansion of its successful smokeless product, IQOS. Investors may consider investing in PM for better returns in the coming years.
