Altria (MO) on Thursday said it would increase its quarterly dividend by 4.7% to 90 cents per share. The stock is also in a base. But the FDA is increasingly asking e-cigarette manufacturers to justify their existence, with big implications for Altria's investment in Juul. So should you buy MO stock now?
The company, best known for selling Marlboros in the U.S., in July reported second-quarter results that beat expectations. The tobacco giant 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. While customers clung to their smoking habits last year amid the stress of the coronavirus pandemic, struggles continue at vaping startup Juul.
Juul Scrutiny, Cronos Group
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.
The FDA is also weighing whether to allow Juul's products to be sold in the U.S.
The agency asked vaping-products makers to submit an application showing their products were healthier than cigarettes. The submission deadline was last September. The FDA is now racing to determine by Sept. 9 of this year which applicants' products — from hundreds of companies, with millions of products — can still be sold.
The FDA this month already denied applications for flavored e-cigarette products from three companies. The agency said businesses whose applications were rejected had to stop selling those products or risk enforcement.
Elsewhere, North Carolina's attorney general recently said that Juul had agreed to pay the state $40 million and undertake other sales restrictions. Lawsuits against Juul from around a dozen other states have made roughly the same accusations.
Altria and Juul, in a brief filed this month after an FTC administrative trial, argued against FTC lawyers who alleged Altria stifled competition by investing in Juul.
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.
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.
MO Stock Technical Analysis
MO stock is a flat base with a 52.69 buy point.
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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