MO Stock: Is Marlboro Maker Altria A Buy As Biden Weighs Crackdown?

Altria stock fell in April after the Wall Street Journal reported that the Biden administration was weighing whether to reduce the amount of nicotine in cigarettes in the U.S. The potential measure, the Journal said, would make nicotine levels low enough to no longer be addictive. As MO stock slides, should you buy it at a discount?




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The Journal also said the Biden administration was considering moving ahead with a possible ban on menthol cigarettes. The drop in the tobacco giant’s share price followed a post-earnings run higher, during which it cleared a base.

Still, 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.

Here’s a look at whether any buying opportunity for Altria stock exists against that backdrop.

‘Progress’ For MO Stock

Altria (MO), best known for selling Marlboros in the U.S., in January reported mixed fourth-quarter earnings. But the company announced a new $2 billion share buyback plan at that time.

Altria also said it “made progress” toward its 10-year plan to “responsibly transition adult smokers to a noncombustible future,” referring to devices that use a heating element — rather than a traditional lighter — to create inhalable tobacco. It said it would invest more toward that plan this year.

In February, Altria reaffirmed its 2021 earnings-per-share outlook of $4.49-$4.62, although the midpoint was below forecasts. Later in the month, it declared a regular quarterly dividend of 86 cents per share.

Altria in recent years has faced questions about cigarette demand, amid a rise in health consciousness. But recent data from the North American Quitline Consortium found the number of people who sought help quitting smoking sank 27% last year, according to USA Today.

However, Altria’s efforts to become less of a cigarette company — through investments in e-cigarette startup Juul as well as Canadian pot producer Cronos Group (CRON) — haven’t come without their share of problems.


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MO Stock Fundamental Analysis

Altria has said its tobacco business has not been hit hard by restrictions related to the coronavirus pandemic. Most retail stores and convenience stores that sell cigarettes and tobacco products have been considered “essential” businesses and remained open. A population deprived of other leisure activity has spent more money on its smoking habits.

Still, Altria’s earnings growth has been slowing. For 2019, Altria earnings rose 6%. For 2020, earnings growth decelerated to 3.6%. Analysts, however, expect 2021 earnings to grow 4.6%, a slight acceleration from last year. Top stocks usually have solid underlying earnings growth.

Overall, MO stock falls far short of the CAN SLIM benchmark for 25% growth in earnings and revenue.

Philip Morris Marlboro Cigarettes
(Jonathan Weiss/Shutterstock)

Still, Cowen analyst Vivien Azer, in a research note in July, said customers were “staying at home … and smoking more.”

She added that Altria’s second-quarter results for last year were helped by “the combination of government stimulus, and lower discretionary spending (on gas, entertainment etc.).” That, she continued, “has allowed smokers to increase their nicotine consumption.”

The company in July said the cigarette industry has shown “resilience,” as older smokers, anxious over 2019’s vaping scare, came back to cigarettes after trying vaping.

In October, Altria reported third-quarter results that beat expectations. But the company logged yet another write-down on its investment in Juul — its fourth such charge.

Juul Investment

That impairment, Altria said, was based on its “projections of lower JUUL revenues over time due to lower pricing assumptions and delays in JUUL achieving previously forecasted operating margin performance.”

Juul e-cigarette
(Steve Heap/Shutterstock.com)

Azer noted that Juul has turned away from business internationally to focus on North America and the U.K.

Altria in 2018 invested $12.8 billion in Juul, taking a 35% stake in the company. But that bet has run up against concerns tied to vaping and dimmer profit expectations, as legal cases and lawmaker scrutiny piled up amid anger over allegedly misleading health claims.

In 2020, the FDA said it would remove some vaping products from the market. The Federal Trade Commission last year also sued to unwind Altria’s stake in Juul, alleging the move “eliminated competition in violation of federal antitrust laws.” And Juul has cut jobs and shaken up leadership.

In prior years, investors grew more worried about fading demand for cigarettes, as customers became more health-conscious. Sales growth for Altria has also been choppy over that time, bouncing between single-digit percentage gains and declines.


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MO Stock Technical Analysis

MO stock, in February, cleared a 43.97 buy point of a cup-with-handle base. Shares are still extended from that base, but are now testing the 50-day line after the steep drop on the potential Biden move .

Most of the Altria stock base formed below the 200-day moving average, which is not a good sign. MO stock, after falling steadily since mid-2017, is still not close to its highs.

Altria stock has a 76 Composite Rating, indicating mediocre overall performance. The stock’s EPS Rating, which measures earnings growth, is 70.

The relative strength line for MO stock has been falling for years, and late last year hit its lowest levels since 2004. That line began rebounding in February by fell on the Journal report. When a stock’s relative strength line goes lower, that means it’s falling behind overall compared to the S&P 500.

Other tobacco stocks, like Philip Morris International (PM) — once a part of Altria — and British American Tobacco (BTI), similarly fell after topping out in 2017. Philip Morris International stock has a 41 Composite Rating. British American Tobacco’s Composite Rating is 50.


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Altria Invests In Marijuana Stocks

Meanwhile, Altria’s bet on marijuana, via a $1.8 billion investment in Canadian pot producer Cronos, has yet to pay off. Investors are still waiting for the cannabis industry to clean up its finances.

Altria in 2018 agreed to take a 45% stake in Cronos. The investment could give Altria a new line of sales, amid uncertainty over its cigarette business. It could also give Cronos deeper production resources and help the pot company tap Altria’s regulatory expertise.

But Altria, when it reported results this past October, noted that Cronos continues to be hurt by coronavirus-related retail-store closures and capacity limits in the U.S. Cronos owns the U.S. CBD brand Lord Jones.

The pandemic also forced Cronos to take an impairment charge in its second quarter, which Altria booked in the third quarter.

Piper Sandler analyst Michael Lavery said that more regulatory change in the U.S. is needed for the relationship with Altria, and Cronos’ other relationships with U.S. cannabis companies, to bring “meaningful revenue growth.”


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So Is Altria Stock A Buy?

MO stock is not in a buy zone. Shares, more broadly, are also in a multiyear slide, with a long stretch of underperformance vs. the S&P 500 index.

IBD recommends investors focus on stocks that are closer to their highs and that have Composite Ratings of 90 or higher.

Even as older customers rediscover cigarettes, MO stock has mediocre ratings. Earnings growth might tick higher this year. But revenue has bounced between anemic growth and modest declines.

The bottom line: Altria is not a buy right now.

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