Altria (MO) reports second-quarter earnings on Thursday, as regulators continue to scrutinize vaping startup Juul, the recipient of a big investment from the tobacco giant. Nonetheless, the stock is in a base, after taking a big hit in April. So should you buy MO stock now?
North Carolina’s attorney general recently said that Juul had agreed to pay the state $40 million, restrict how it advertises to young people and keep sales behind counters there, among other commitments. The settlement came after the state sued Juul in 2019, accusing it of “selling its e-cigarettes to attract young people” and “misrepresenting the potency and danger of nicotine in its products.”
Settlements, at times, can represent closure for investors. But lawsuits against Juul from around a dozen other states have made roughly the same allegations.
An FTC administrative trial over whether Altria (MO) stifled competition by investing in Juul is also underway. And the FDA is weighing whether to allow Juul’s products to be sold in the U.S.
Altria, best known for selling Marlboros in the U.S., in late 2018 said it took a 35% stake in Juul. But Juul’s profit and sales expectations have faded, as competition and anger over allegedly misleading health claims pile up.
More broadly, Altria in recent years has also faced questions about cigarette demand, amid a rise in health consciousness. Along with Juul, Altria’s other efforts to become less of a cigarette company — through an investment in Canadian pot producer Cronos Group (CRON) — haven’t come without their share of problems.
Cronos Group’s size in Canada remains small compared to other publicly traded marijuana stocks on U.S. exchanges. Analysts have waited for more to come from that investment.
In April, Altria reported mixed first-quarter earnings, and the FDA said it planned to take efforts to ban menthol cigarettes and flavored cigars. Earlier in the month, shares of the company took a hit after the Wall Street Journal reported that the Biden administration was considering moving ahead with such a ban.
Still, while regulators take aim, stimulus checks from President Biden’s coronavirus relief package have made their way into consumers’ hands. More people last year clung to their smoking habits amid the stress of the pandemic. A potential menthol ban could face legal challenges.
Here’s a look at whether any buying opportunity for Altria stock exists against that backdrop.
MO Stock Fundamental Analysis
Analysts expect Altria’s 2021 earnings to grow 5.3% this year and 5.2% next year, according to FactSet.
Top stocks usually have solid underlying earnings growth. But overall, MO stock falls far short of the CAN SLIM benchmark for 25% growth in earnings and revenue.
Sales growth for Altria has also been choppy, bouncing between single-digit percentage gains and declines over recent years.
MO Stock Technical Analysis
While MO stock fell hard in April after the Journal report, it formed a flat base with a 52.69 buy point in the days that followed.
MO stock is still not close to the highs it reached in mid-2017. The stock’s relative strength line has been falling for years. When a stock’s relative strength line goes lower, that means it’s falling behind overall compared to the S&P 500.
So Is Altria Stock A Buy?
MO stock is in a base. But it is not yet in a buy zone.
The bottom line: Altria is not a buy yet.
Moreover, MO stock has mediocre ratings. Earnings growth might tick higher this year. But revenue has bounced between anemic growth and modest declines.
IBD recommends investors focus on stocks that are closer to their highs and that have Composite Ratings of 90 or higher.
Follow Bill Peters on Twitter at @IBD_BPeters.
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