The following material discusses the usage of valuation template using principles of value investing and the economic logic behind estimating the worth of a business. It is provided solely for educational and informational purposes.
We can apply the template we have introduced here to real cases, focusing on company with pay a dividend. We analyzed already PepsiCo (here) and Coca-Cola (here).
Philip Morris International (PM)
Reference Date: January 9, 2026.
Altria is a mature U.S. tobacco and nicotine company whose economics are dominated by combustible cigarettes (Marlboro) alongside oral tobacco (Copenhagen, Skoal) and newer nicotine formats. The business is often described as a “price over volume” franchise: unit volumes tend to decline structurally, while pricing, mix, and cost control have historically protected cash generation. What makes the equity simultaneously attractive and uncomfortable is that the same cash-flow durability that supports large shareholder returns sits inside a policy and litigation envelope that can change the rules of the game quickly.
Recent reporting continues to highlight the core tension: cigarette shipment volumes keep falling while management tries to expand smoke-free exposure, and the category faces disruption from unapproved or illicit vaping products plus periodic step-changes in regulation and enforcement.
Altria’s capital intensity is low, so free cash flow (operating cash flow minus capital expenditures) tends to be close to operating cash flow.
From Altria’s published cash-flow history, net cash provided by operating activities was 8.405B in 2024 and capital expenditures were 0.169B, implying about 8.236B of simple free cash flow for 2024. For additional context, the first nine months of 2025 show operating cash flow of 6.019B and capex of 0.124B, implying 5.895B over nine months (roughly 7.9B annualized).
To keep the template consistent with the PepsiCo write-up while acknowledging year-to-year noise (working capital, settlement timing, and one-offs), we use a rounded normalized figure:
\text{FCF}_{0} \approx 8.5\ \text{billion}
Shares outstanding were 1,678,671,552 as of October 22, 2025. At the reference price of about 57.53, market cap is therefore roughly:
\text{Market Cap} \approx 57.53 \times 1.679 \approx 96.6\ \text{billion}
The implied trailing free cash flow yield is:
\text{FCF Yield} \approx \frac{8.5}{96.6} \approx 8.8%
Balance-sheet leverage is meaningful but not extreme. At September 30, 2025, Altria reported cash and cash equivalents of 3.472B and total debt carrying value of 25.701B, implying net debt of about 22.2B.
Altria is also explicitly a “return of capital” story. The 2024 10-K shows an annualized dividend rate of 4.08 per share (as of that filing period), which is a large component of total return at today’s price.
We keep the same three-stage free cash flow model, but adapt the interpretation for tobacco. In this industry, the per-share outcome is heavily influenced by buybacks, so it is more natural to think in terms of free cash flow per share growth rather than total free cash flow growth. Altria has reduced shares outstanding materially over the last several years (as shown in its 10-K share table), which can offset a flat-to-declining total FCF profile.
As before, we write:
\text{PV per share} = \text{FCF}_{0,\ \text{per share}} \cdot K(g_{1},g_{2},g_{\infty},r)
where K is the same discount factor:
\begin{aligned} K &= K_1 + K_2 + K_\infty \\ K_1 &= \sum_{t=1}^{5} \frac{(1+g_{1})^{t}}{(1+r)^t} \\ K_2 &= (1+g_{1})^{5} \sum_{t=6}^{10} \frac{(1+g_{2})^{t-5}}{(1+r)^t} \\ K_\infty &= (1+g_{1})^{5}(1+g_{2})^{5} \frac{(1+g_{\infty})}{(r - g_{\infty})(1+r)^{10}} \end{aligned}
The industry adaptation is mainly in r and g_\infty. Tobacco deserves a higher required return than a typical consumer staple because the long-run distribution of outcomes includes regulatory discontinuities (product standards, flavor bans, enforcement shifts) and litigation shocks, plus a secular decline in combustibles that may or may not be fully offset by smoke-free migration. Recent disclosures and reporting on shipment declines and impairments are consistent with that risk framing.
We keep three scenarios (bearish, base, bullish). Growth rates below are best read as per-share free cash flow growth, implicitly including the effect of ongoing repurchases.
Using \text{FCF}_{0} = 8.5\ \text{B} and \text{Shares} = 1.679\ \text{B}:
| Case | g_1 (Y1–5) | g_2 (Y6–10) | g_\infty | r |
|---|---|---|---|---|
| Bearish | 0% | -1% | -1% | 11% |
| Base | 2% | 1% | 0% | 10% |
| Bullish | 3% | 2% | 1% | 9% |
These assumptions encode a simple story. The bearish case treats the franchise as a melting ice cube where buybacks only partially stabilize per-share cash flow, and where the hurdle rate is high because policy risk dominates. The base case assumes pricing, cost control, and repurchases collectively keep per-share FCF inching up in low single digits for a while, then flatten. The bullish case assumes a smoother smoke-free transition (or at least less disruption) so that modest per-share compounding persists longer.
With those parameters, the DCF factor K and the implied per-share intrinsic values are:
| Case | K_1 | K_2 | K_\infty | K | Intrinsic value / share |
|---|---|---|---|---|---|
| Bearish | 3.70 | 2.13 | 2.76 | 8.59 | 43.5 |
| Base | 4.01 | 2.67 | 4.47 | 11.16 | 56.5 |
| Bullish | 4.23 | 3.10 | 6.83 | 14.16 | 71.7 |
Using the reference price (P_{} ):
| Case | Intrinsic value per share | Current price | Margin of safety |
|---|---|---|---|
| Bearish | 43.5 | 57.5 | -32% |
| Base | 56.5 | 57.5 | -2% |
| Bullish | 71.7 | 57.5 | +20% |
In this setup, MO looks close to fairly valued in the base case. That is a meaningful difference versus PepsiCo, where valuation was much more sensitive to shaving the discount rate and assuming long-duration growth. Here, the discount rate is higher and terminal growth is constrained by industry structure, so the DCF multiple on current FCF is much lower.
It is also worth noticing that the terminal value remains a large part of the result (especially in the bullish case), which is exactly where tobacco’s uncertainty lives. Regulatory shocks, illicit market dynamics, and the pace of combustible decline can move the long-run slope of cash flows materially, and recent reporting on shipment declines and impairments is a reminder that the transition path is not smooth.
Altria still represents a high-current-cash-return equity with low capex and an established distribution machine, and the market price around the high-50s implies a high free cash flow yield on normalized figures. The balance sheet is leveraged but appears manageable on reported cash and debt levels.
Within this Buffett-style framework, MO does not read as “obviously cheap” once we impose a higher hurdle rate and limit terminal growth to reflect industry risk, but it can look acceptable when the base case is framed as low-single-digit per-share cash flow growth supported by ongoing repurchases and pricing. If the goal is a wide margin of safety against adverse regulatory outcomes, the bearish-case anchor suggests requiring a substantially lower entry price than today’s level.
Reference Date: January 9, 2026.
Philip Morris International is the global (ex-U.S.) tobacco franchise that has been trying to reposition itself from a cigarette company into a broader nicotine business. The investment case lives in the intersection of three forces: structural volume decline in combustibles, pricing power and cost discipline, and the migration toward smoke-free products that can partially offset the decline in the legacy base. Recent reporting has continued to show that contrast, with combustibles slipping while smoke-free volumes and revenue grow faster.
From a value-investing point of view, PM is usually less of a “melting ice cube” than a pure cigarette story, but it still sits inside a regulatory and litigation envelope that can create discontinuities. That tends to justify a higher required return than we would use for a typical consumer staple, even if the cash generation is strong.
PM’s 2024 annual report shows net cash provided by operating activities of 12.217B and capital expenditures of 1.444B. A simple free cash flow proxy is therefore:
\text{FCF}_{2024} \approx 12.217 - 1.444 = 10.773 \ \text{billion}
To keep the template consistent and rounded, we use:
\text{FCF}_{0} \approx 10.8 \ \text{billion}
On share count, the Q3 2025 10-Q states 1,556,638,749 shares outstanding as of October 17, 2025. So:
\text{FCF}_{0,\ \text{per share}} \approx \frac{10.8}{1.56} \approx 6.9
At the reference price of about 158.82, market cap is approximately:
\text{Market Cap} \approx 158.82 \times 1.56 \approx 247 \ \text{billion}
which implies a trailing free cash flow yield around:
\text{FCF Yield} \approx \frac{10.8}{247} \approx 4.4%
Leverage matters. The same Q3 2025 filing shows cash and cash equivalents of 4.037B at September 30, 2025, and states total debt of 50.1B at September 30, 2025 (versus 45.7B at December 31, 2024). That is net debt of roughly 46B on this snapshot.
We keep the same three-stage free cash flow model, but interpret the growth inputs as per-share free cash flow growth. That framing matters because PM can support per-share progress not only through operating improvement and mix, but also through capital allocation, and it keeps the model comparable to the MO work-up.
\text{PV per share} = \text{FCF}_{0,\ \text{per share}} \cdot K(g_{1},g_{2},g_{\infty},r)
with:
\begin{aligned} K &= K_1 + K_2 + K_\infty \\ K_1 &= \sum_{t=1}^{5} \frac{(1+g_{1})^{t}}{(1+r)^t}\\ K_2 &= (1+g_{1})^{5}\sum_{t=6}^{10}\frac{(1+g_{2})^{t-5}}{(1+r)^t} \\ K_\infty &= (1+g_{1})^{5}(1+g_{2})^{5}\frac{(1+g_{\infty})}{(r-g_{\infty})(1+r)^{10}} \end{aligned}
Because tobacco carries material policy and product-transition risk, we use a higher hurdle than we used for PepsiCo, but we still allow for somewhat better growth than a purely domestic cigarette franchise because PM’s smoke-free mix has been a real driver in recent results.
We use the following per-share assumptions:
| Case | g_1 (Y1–5) | g_2 (Y6–10) | g_\infty | r |
|---|---|---|---|---|
| Bearish | 2% | 1% | 0% | 10% |
| Base | 4% | 3% | 1% | 9% |
| Bullish | 5% | 4% | 1.5% | 8% |
Using \text{FCF}_{0} \approx 10.8 billion and \text{Shares} \approx 1.56 billion:
| Case | K_1 | K_2 | K_\infty | K | Intrinsic value / share |
|---|---|---|---|---|---|
| Bearish | 4.01 | 2.67 | 4.47 | 11.16 | 77 |
| Base | 4.35 | 3.35 | 7.52 | 15.22 | 106 |
| Bullish | 4.60 | 3.88 | 11.23 | 19.71 | 137 |
Using P_{\text{market}} \approx 158.82:
| Case | Intrinsic value per share | Current price | Margin of safety |
|---|---|---|---|
| Bearish | 77 | 159 | -106% |
| Base | 106 | 159 | -50% |
| Bullish | 137 | 159 | -16% |
Within this framework, PM looks priced for a fairly optimistic combination of (i) sustained per-share cash flow growth and (ii) a required return that is not much higher than what we would demand from a high-quality staple. That is not an absurd market stance given the smoke-free momentum that has shown up in recent reported mixes, but it is a stance that leaves less room for error if regulation, illicit competition, or the transition path disappoints.
The practical takeaway is that PM is not behaving like a high free cash flow yield “classic value” entry the way MO sometimes can; PM’s market price looks more like a compounder valuation applied to a business with a non-trivial tail risk distribution.
Reference Date: January 9, 2026.
Pfizer is a large, diversified biopharma company, but its cash-flow profile in the current cycle is shaped by two unusual forces. First, the post-pandemic reset has removed a large, high-margin revenue stream, so reported results are still normalizing. Second, the portfolio faces the usual large-pharma cadence of exclusivity losses and pipeline replenishment, which means the “steady compounder” framing only works if the late-stage pipeline and BD strategy keep replacing cash flows at a sufficient rate.
This is also a company that drew activist attention recently, with Starboard publicly pushing for changes and later exiting the position during 2025, which is a useful reminder that even mega-cap pharma can enter a period of strategic pressure when performance lags.
For a valuation anchored on cash, the cleanest starting point is operating cash flow minus capital expenditures.
Pfizer’s 2024 Form 10-K shows net cash provided by operating activities of 12.744B and purchases of property, plant and equipment of 2.909B. A simple free cash flow proxy is therefore:
\text{FCF}_{2024}\approx 12.744 - 2.909 = 9.835 \ \text{billion}
On the more recent run-rate, Pfizer’s Q3 2025 10-Q reports nine-month operating cash flow of 6.356B and capex of 1.784B. That implies about 4.572B of nine-month free cash flow (before any judgement about normalization).
For shares, the same 10-Q reports 5,685,707,552 shares outstanding as of October 29, 2025.
Using the 2024 cash-based proxy as our normalized anchor:
\text{FCF}_{0,\text{per share}} \approx 1.73
At about 25.30 per share, the implied trailing free cash flow yield is roughly:
\text{FCF Yield} \approx \frac{1.73}{25.30}\approx 6.8%
Balance sheet leverage is material. At September 28, 2025 Pfizer reported cash and cash equivalents of 1.343B and short-term investments of 13.641B. The same filing shows long-term debt (as adjusted) of 57.409B and short-term borrowings (including current portion of long-term debt) of 4.303B. Treating cash plus short-term investments as cash-like, that is net debt on the order of the mid-40B range.
As with the PepsiCo and tobacco write-ups, we treat the free cash flow proxy here as an equity-relevant cash flow (after interest paid, since interest is in operating cash flow). Leverage still matters through flexibility and risk, but we do not separately subtract net debt from the DCF output.
We apply the same three-stage free cash flow model and discount at a required return r:
\text{PV per share} = \text{FCF}_{0,\text{per share}}\cdot K(g_{1},g_{2},g_{\infty},r)
with:
\begin{aligned} K &= K_1 + K_2 + K_\infty \\ K_1 &= \sum_{t=1}^{5} \frac{(1+g_{1})^{t}}{(1+r)^t} \\ K_2 &= (1+g_{1})^{5} \sum_{t=6}^{10} \frac{(1+g_{2})^{t-5}}{(1+r)^t} \\ K_\infty &= (1+g_{1})^{5}(1+g_{2})^{5} \frac{(1+g_{\infty})}{(r - g_{\infty})(1+r)^{10}} \end{aligned}
For pharma, the adaptation is conceptual: near-term growth is less about smooth compounding and more about the interaction of (i) exclusivity losses, (ii) pipeline launches, (iii) pricing and access, and (iv) integration and execution on acquired assets. That argues for a higher r than we would use for a consumer staple, and for conservative terminal growth.
To keep the model readable while reflecting pharma reality, the growth rates below are best read as per-share free cash flow growth, implicitly including ongoing capital allocation.
| Case | g_1 (Y1–5) | g_2 (Y6–10) | (g_{}) | r |
|---|---|---|---|---|
| Bearish | -1% | 0% | 0.5% | 10% |
| Base | 2% | 1.5% | 1.5% | 9% |
| Bullish | 4% | 3% | 2% | 8% |
The bearish case corresponds to a world where the portfolio does not fully replace declining cash flows and the equity is priced with a double-digit hurdle. The base case assumes modest per-share growth as the portfolio stabilizes. The bullish case assumes the pipeline and recent portfolio actions translate into several years of better per-share compounding and a lower (but still not staple-like) required return.
Using \text{FCF}_{0,\text{per share}}\approx 1.73 from 2024 cash flows and the share count above:
| Case | K_1 | K_2 | K_\infty | K | Intrinsic value / share |
|---|---|---|---|---|---|
| Bearish | 3.69 | 2.18 | 3.94 | 9.80 | 17.0 |
| Base | 4.14 | 2.98 | 6.71 | 13.83 | 23.9 |
| Bullish | 4.50 | 3.59 | 11.09 | 19.18 | 33.2 |
Using P_{\text{market}}\approx 25.30:
| Case | Intrinsic value / share | Current price | Margin of safety |
|---|---|---|---|
| Bearish | 17.0 | 25.3 | -49% |
| Base | 23.9 | 25.3 | -6% |
| Bullish | 33.2 | 25.3 | +24% |
Within this framework, Pfizer looks close to fairly valued in the base case and meaningfully undervalued only in the bullish case. That is the signature of a business where our view on reinvestment success and portfolio renewal matters more than small tweaks to the discount rate.
If we insist on a Buffett-style double-digit hurdle and also demand a comfortable gap between value and price, the bearish-to-base band suggests wanting an entry meaningfully below the mid-20s. If we are willing to underwrite a credible path to renewed per-share cash flow growth and accept an 8% required return, the upside scenario becomes attractive, but that is precisely the part of the distribution that depends on execution and science.
Reference Date: January 9, 2026 close.
Verizon is a mature, capital-intensive telecom utility in competitive clothing. The core engine is U.S. wireless service revenue, supported by a large network footprint and meaningful scale, with broadband growing through fiber and fixed wireless access. The investment case is usually not about rapid growth. It is about the durability of cash generation after heavy reinvestment, and how that cash is split between dividends, debt reduction, and whatever growth capex is needed to keep the network competitive.
That industry structure matters for valuation. Unlike a consumer staple where incremental growth can be relatively asset-light, telecom requires ongoing, lumpy capital spending and periodic spectrum investment. Those features make reported free cash flow very sensitive to where we are in the capex cycle.
Verizon’s 2024 Form 10-K provides a clean reconciliation of “free cash flow” as operating cash flow minus capital expenditures (including capitalized software). For 2024, Verizon reported:
To keep the template consistent with our other write-ups, we use:
\text{FCF}_{0} \approx 19.8\ \text{billion}
For share count, Verizon’s Q3 2025 10-Q reports 4,216,425,489 common shares outstanding (net of treasury) at September 30, 2025.
\text{FCF}_{0,\ \text{per share}} \approx \frac{19.8}{4.216} \approx 4.70
At a price near 40.57, the implied trailing free cash flow yield is roughly:
\text{FCF Yield} \approx \frac{4.70}{40.57}\approx 11.6%
The balance sheet is heavily levered, which is normal for this industry but still a real constraint. At September 30, 2025 Verizon reported cash and cash equivalents of 7.706B, and it discussed total debt of 146.8B at that date, implying net debt around 139B.
Verizon is also a dividend-first equity. Verizon’s dividend history shows 2025 quarterly dividends of 0.6775 (first half) and 0.69 (second half), totaling 2.735 for 2025, with the most recent quarterly rate at 0.69. At today’s price, that is roughly a 6.8% dividend yield, and it consumes about 59% of our 2024 free cash flow per share (4.70 vs 2.76 annualized).
We use the same three-stage free cash flow model:
Discounted at required return r:
\text{PV per share} = \text{FCF}_{0,\ \text{per share}} \cdot K(g_{1},g_{2},g_{\infty},r)
with:
\begin{aligned} K &= K_1 + K_2 + K_\infty \\ K_1 &= \sum_{t=1}^{5} \frac{(1+g_{1})^{t}}{(1+r)^t} \\ K_2 &= (1+g_{1})^{5} \sum_{t=6}^{10} \frac{(1+g_{2})^{t-5}}{(1+r)^t} \\ K_\infty &= (1+g_{1})^{5}(1+g_{2})^{5} \frac{(1+g_{\infty})}{(r - g_{\infty})(1+r)^{10}} \end{aligned}
For Verizon, growth is usually modest, and the key risk is not “demand disappears,” but rather competition and reinvestment requirements squeezing the residual cash left for shareholders. The leverage profile also argues for a higher hurdle than a classic consumer staple.
We use per-share free cash flow growth assumptions:
| Case | g_1 (Y1–5) | g_2 (Y6–10) | g_\infty | r |
|---|---|---|---|---|
| Bearish | 0.0% | 0.0% | 0.0% | 10% |
| Base | 1.5% | 1.0% | 0.5% | 9% |
| Bullish | 2.5% | 1.5% | 1.0% | 8% |
Using \text{FCF}_{0,\text{per share}}\approx 4.70:
| Case | K | Intrinsic value / share |
|---|---|---|
| Bearish | 10.00 | 47 |
| Base | 12.51 | 59 |
| Bullish | 15.64 | 74 |
Using P_{\text{market}} \approx 40.57:
| Case | Intrinsic value / share | Current price | Margin of safety |
|---|---|---|---|
| Bearish | 47 | 40.6 | +14% |
| Base | 59 | 40.6 | +31% |
| Bullish | 74 | 40.6 | +45% |
Verizon’s 10-K explicitly notes that free cash flow, as defined, does not incorporate cash paid for wireless licenses. In 2024, cash paid for wireless licenses was 0.9B in the investing section of the cash flow statement.
If we treat spectrum spending as a recurring reinvestment need and subtract that from 2024 free cash flow, the intrinsic values fall modestly to about 45 / 56 / 70 (bearish/base/bullish). The conclusion does not flip, but the cushion narrows.
Within this framework, Verizon screens as undervalued mainly because the starting free cash flow yield is high relative to even a 9–10% hurdle. The dividend looks covered by 2024 free cash flow, and the remaining cash can go toward debt service and balance-sheet maintenance, which matters given the very large debt load.
The main reasons to stay conservative are also the usual telecom ones: capex can rise again, spectrum can become a larger cash drain in certain years, and competition can force higher customer acquisition costs or constrain pricing. On capital allocation, Verizon did not repurchase shares during the first nine months of 2025, so per-share progress is more dependent on operating results than on buybacks.
Net, Verizon looks more like a cash-distribution and balance-sheet management story than a compounding story. At around 40, the valuation appears to embed low expectations, and that is why even modest growth assumptions generate a reasonable margin of safety in this simple cash-flow framework.