By Esther Kwon, S&P Capital IQ Equity Analyst, The Outlook

Our latest Focus Stock is Philip Morris International (PM), which carries S&P Capital IQ's highest investment recommendation of 5- STARS, or "strong buy."

The company is the world's largest publicly traded manufacturer and marketer of tobacco products. With operations in about 180 countries, we expect Philip Morris International to outperform its domestic peers.

Similar to its domestically focused peers, we see Philip Morris International as having strong pricing power, which we see as the primary driver of revenue growth for the foreseeable future.

In 2012, higher pricing added $1.8 billion to revenue, and we expect a benefit of more than $1 billion in 2013. The company says it had already achieved 75% of its targeted pricing by early February.

We think the company will benefit from increasing exposure to emerging markets, with 61% of sales volume derived from emerging markets in 2012 compared to 29% in 2007.

Moreover, we believe Philip Morris International is the best positioned among its peers to benefit from consumers trading up to premium brands as disposable income rises, and we see an opportunity to bring the proportion of premium volume up to levels similar to what it has in developed markets.

We expect Philip Morris International to generate more than $30 billion in free cash flow over the next three years, which we see the company distributing to shareholders via dividends and share repurchases.

Since its spin-off from Altria Group (MO), Philip Morris International has increased its dividend by almost 85% and repurchased more than 23% of its shares. In August 2012, it initiated a new three-year, $18 billion share repurchase program.

After exceeding its one-year productivity and cost savings target of $300 million in 2012 through rationalization of tobacco blends and other manufacturing and procurement initiatives, the company is targeting another $300 million of savings in 2013 to offset higher materials costs.

Considering the company's pricing power and exposure to growing emerging markets, we think prospects are bright for Philip Morris International.

We believe strong cash flow generation, generally at a rate faster than earnings growth, should boost returns to shareholders via an above-market indicated dividend yield, currently at 3.7%, and active share repurchases.

Together with our target price, we see total return potential of about 16% from current levels over the next 12 months.

More from TheStockAdvisors.com​

• Artisan: A trio of top global funds
• Matthews: A Pacfiic tiger
• Emerging gains in chaotic countries