With the FDA increasingly asking e-cigarette manufacturers to justify their existence, tobacco giant Altria’s (MO) investment in Juul hangs in the balance. So should you buy MO stock now?
After asking vaping-products makers to submit an application showing their products were healthier than cigarettes, the FDA has been racing to determine by Sept. 9 — a day ago — which of those products, from hundreds of companies, can still be sold.
But the agency on Thursday did not announce a decision on Juul’s products. While it has taken action against others, it said “there’s more work to be done to complete our remaining reviews.”
Altria in late 2018 said it took a 35% stake in Juul. But Juul’s profit and sales expectations have faded. Competition and allegations over misleading health claims and efforts to target younger consumers have piled up.
Elsewhere, Altria has also invested in Canadian cannabis company Cronos Group (CRON). 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.
Still, Altria, best known for selling Marlboros in the U.S., recently said it would bump its quarterly dividend higher. In July, it reported second-quarter results that beat expectations. The company also raised the low end of its full-year profit outlook.
Altria said the more upbeat forecast came on “continued confidence in our tobacco businesses,” investments in smoke-free products and its decision in July to sell its Ste. Michelle Wine Estates wine business to a private equity firm for around $1.2 billion.
However, Altria’s efforts to become less of a traditional cigarette company have hit a snag. The company said Philip Morris USA, which it owns, had delayed further expansion of its Iqos and Marlboro HeatStick heat-not-burn tobacco products. Altria cited the “uncertainty” stemming from a patent infringement case as the reason.
The company has also faced questions about cigarette demand amid rising health consciousness, even though customers clung to their smoking habits last year amid the stress of the coronavirus pandemic.
MO Stock Fundamental Analysis
Analysts expect Altria’s 2021 earnings to grow 6% this year and 5% 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 been choppy, bouncing between single-digit percentage gains and declines over recent years.
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MO Stock Technical Analysis
MO stock is a flat base with a 52.69 buy point.
Altria stock has a 65 Composite Rating, indicating mediocre overall performance. The stock’s EPS Rating, which measures earnings growth, is 65.
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.
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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.
Check out IBD Stock Lists and other IBD content to find dozens of the best stocks to buy or watch. You can also read more here about stocks to buy or sell.
Follow Bill Peters on Twitter at @IBD_BPeters.
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