When I last covered Philip Morris International (NYSE:PM) I had to stop and say “LOL.” Why? It was a simply laughable situation where I was reminded of the movie “Iron Man” when Tony Stark announced his weapons company Stark Industries would no longer make weapons. I discussed PM and the hit to the stock after the company’s management insinuated the company would no longer sell cigarettes. Now this may of course been in the future, and referred to smokeless tobacco, or actually paperless/burning of tobacco in favor of vaporization, but I found the notion and the sentiment laughable. Of course, it wasn’t said with gusto. It wasn’t said like this was the actual plan, it was in the broader context of the company as a whole and what the future of tobacco may be. Still, the way it came across was hysterical. Don’t get me wrong I am a health professional and smoking is bad for you. But for a company that sees stagnating sales thanks to anti-smoking interventions, the timing couldn’t have been worse. This morning however, as I prepare to finish holiday shopping, I find myself no longer laughing. Not even chuckling. In fact, a potentially game changing discussion is underway and you need to be aware of it.

What am I talking about? I am talking about the company joining forces with its counterpart. I am talking about Philip Morris buying Altria (NYSE:MO). No this is not a pipe dream. The plan has analysts actually considering probabilities, and just this morning a Wells Fargo analyst put the odds at 70%. A 70% chance that this happens. That is pretty favorable. Would you take the bet that it didn’t happen? Now, I don’t know what the bookmakers actually have this at, but a statement like that catches my attention, and quickly. What is more, a said deal could occur within the next year too. Throwing a high range out there, it is estimated Philip Morris could pay as much as $77 per share. Should this offer occur, having seen the back and forth play out before, an offer is more likely to come in well below this mark. That said, Altria shares have been trending higher, perhaps on speculation a deal might occur. Could you imagine the power of these two companies as one? The word Monopoly gets tossed around…this one could be met with some regulatory hurdles. Of course, chatter of this nature is not new. I’ve heard this before. But it is the first time it has been assigned a “more likely than not” rating. Let’s take a look at recent numbers to get a feel for the power this merger would have.

I won’t go into extreme details but when PM reported Q3 results the quarter was so-so on the surface. In Q3 PM took in revenues that rose a paltry 0.7% year-over-year to $6.98 billion. Almost no sales increase is better than reduced sales, which the company had been dealing with. Controlling for currency issues, revenues were up 3.6% year-over-year. Much of this was due to pricing. That said, cigarette shipment volume was down 5.4% year-over- year. Factoring in expenses, the company saw earnings of $1.25, flat from last year’s Q3. However, the currency issue persists. If we back out the $0.04 negative impact and look at a constant dollar basis, earnings per share were up 3.2% versus last year.

Looking ahead, net debt is approaching a whopping $27 billion, up almost $1.4 billion from last year. That is about a year of revenues. This could weigh on a potential deal, though I have seen balance sheets in much worse shape. I have opined that PM should focus its seasonally strong periods on reducing some of this debt. Looking ahead, the company sees 2016 reported earnings per share forecast to be in a range of $4.53 to $4.58. Excluding an unfavorable currency impact of approximately $0.35 for the year, the reported diluted earnings per share range represents a projected increase of approximately 10.5% to 11.5% versus 2015 earnings.

What about Altria? Well, in its Q3 Altria’s net revenues increased 3.1% to $6.9 billion. Revenues net of excise taxes grew 4.3% to $5.2 billion in the quarter. This is quite strong. Earnings wise, Altria’s 2016 Q3 earnings per share was off 28.2% to $0.56, but this primarily driven by a $0.28 per share loss from paying debt early (a good thing). If we make adjustments that factor this in, adjusted earnings per share actually grew 9.3% to $0.82. Much like PM international, Altria is seeing reduced shipments of cigarettes as well. Thus, the future of smokeless tobacco and related products becomes more important. Looking ahead, Altria sees 2016 full-year adjusted earnings per share to be in a range of $2.98 to $3.04. This represents a growth rate of 6.5% to 8.5% from 2015 adjusted earnings of $2.80.

When combining the two company’s potential earnings, we see a range of $7.51 to $7.62. Of course, any potential merger is going to result in an exact share count that is unforeseeable at this time given the companies are buying back shares. However, with the current regulatory climate, and a potential US administration that is seen as more business friendly, the time may be right for Altria and PM International to join as one and streamline the sales of tobacco products globally. Meanwhile, shareholders of either company will continue to enjoy bountiful dividends.

So what do you think? Is a merger all talk, or is it more likely than not? Will you hold either stock through this process? Let the community know below.

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