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Will This Upgrade Help Lorillard (LO) Today?

Stocks in this article: LO

Story updated at 9:55 a.m. to reflect market activity.

NEW YORK (TheStreet) -- Lorillard (LO) was upgraded to "buy" from "neutral" by Goldman Sachs Monday.

Shares of Lorillard gained 2% to $52.90 in morning trading.

The bank set a price target of $60 for the cigarette maker. Analyst Judy E. Hong said the company is attractive and the upgrade is based on a sum-of-the-parts valuation.

Hong wrote, "While LO is not out of the woods in terms of the FDA's potential regulation of menthol, we believe we may be entering a period of limited regulatory headline risk and the stars are aligning with the rest of the story as fundamentals remain solid, e-cig category could get another burst with the national entries by MO & RAI, and valuation has de-risked vs. the Staples group."

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Separately, TheStreet Ratings team rates LORILLARD INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate LORILLARD INC (LO) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, LO's share price has jumped by 31.60%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, LO should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 3.7%. Since the same quarter one year prior, revenues slightly increased by 3.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • LORILLARD INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LORILLARD INC increased its bottom line by earning $3.14 versus $2.81 in the prior year. This year, the market expects an improvement in earnings ($3.45 versus $3.14).
  • The gross profit margin for LORILLARD INC is rather high; currently it is at 53.99%. Regardless of LO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 22.52% trails the industry average.
  • Net operating cash flow has decreased to $457.00 million or 13.61% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • You can view the full analysis from the report here: LO Ratings Report

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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