Tobacco giant Altria (MO) last month reported third-quarter earnings that missed expectations. But the company raised the lower end of its full-year profit forecast and expanded its buyback program. So should you buy MO stock now?
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Altria, best known for selling Marlboro cigarettes in the U.S., earned $1.22 per share during the quarter. That was below estimates for $1.26. Sales of $5.531 billion came in below estimates for $5.727 billion.
Altria nudged the lower end of its full-year earnings-per-share forecast upward, to a range of $4.58 to $4.62. In July, that forecast was for earnings of $4.56 to $4.62 per share.
The tobacco-products maker also said its board had OK’d the expansion of Altria’s $2 billion buyback program to $3.5 billion. Altria said it used proceeds from the sale of its Ste. Michelle Wine Estates business to help fund the expansion. Still, MO stock fell on the report.
Altria’s business outside of traditional cigarettes — products that attempt to heat tobacco rather than burn it, as well as its investment in e-cigarette startup Juul — has also faced increased regulatory scrutiny.
The International Trade Commission in September ordered Altria and Philip Morris International (PM), which Altria spun off in 2008, to stop importing and selling their IQOS heating device, after the agency found the devices infringed on patents held by Reynolds American, owned by British American Tobacco (BAT).
The pause is under a 60-day review by the Biden Administration, and would take hold at the end of November if it isn’t rejected.
Altria said Philip Morris USA, which is still under Altria’s umbrella, “is also preparing contingency plans surrounding sales and distribution, and has been in communication with Philip Morris International Inc. regarding their domestic manufacturing plans.”
MO Stock And Juul
With the FDA increasingly asking e-cigarette manufacturers to justify their existence, Altria’s investment in Juul hangs in the balance. The FDA is trying to determine whether vaping products from hundreds of companies can still be sold, after asking manufacturers of those products to submit an application showing their products were healthier than traditional cigarettes.
Juul’s own products await the FDA’s decision. That approval, in turn, could be good news for Altria, which in 2018 said it took a 35% stake in Juul.
But Juul’s profit and sales expectations have faded. Competition and lawsuits alleging 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.
Altria 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
Altria stock has a 41 Composite Rating, indicating mediocre overall performance. The stock’s EPS Rating, which measures earnings growth, is 66.
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 not in a base or a buy zone.
The bottom line: Altria is not a buy right now.
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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