MO is Breaking Below $47.50 Support After Bad News From the FDA

Analysts aren't feeling optimistic

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This morning I am recommending a bearish trade on Altria Group, Inc. (NYSE:MO), the wine, smokable products and smokeless products manufacturer.

Before reporting earnings in October, 2018, MO had been climbing higher and higher. But after missing earnings per share (EPS) estimates, the stock had to weather the worst December for the stock market on record.

Now, MO is struggling with bad news from the Food and Drug Administration (FDA).

Analysts Sour on MO

An analyst at Morgan Stanley (NYSE:MS) warned that accelerating cigarette volume decline will negatively impact MO in 2019. The analyst in question reduced her EPS forecast to low, single-digit growth, and MO is down in premarket trading as a result.

MO also received bad regulatory news recently. FDA commissioner Scott Gottlieb said he would consider pulling e-cigarettes from the market if companies continued marketing aggressively to youth.

MO took a large stake in the e-cigarette maker Juul in December, and this news from the FDA is going to hinder Juul’s growth, making MO’s investment much less valuable.

Old Support Might Not Hold

If we look at a weekly chart of MO, we see that MO does have some support at the $47.50 level. That support goes back to 2015 though, and that was a very different market.

Weekly Chart of Altria Group Inc. (MO) — Chart Source: TradingView

When we turn to the daily chart, we see that MO has already crossed below $47.50, thought only slightly. MO opened below $47.50 today, and we could see this old support level could collapse completely, sending MO toward its next support level at $40.

Daily Chart of Altria Group Inc. (MO) — Chart Source: TradingView

MO had an extremely bad November and December. After failing to meet earnings estimates and suffering through the Christmas Eve selloff, the stock has lost more than 26% of its value.

This new downgrade is going to make traders more cautious, and I wouldn’t be surprised if MO moved lower as a result. That’s why I’m recommending a put option this morning.

Buy to open the Altria Group, Inc. (MO) March 15th $45 Puts (MO190315P00045000) at $0.95 or lower.

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