Lorillard Inc. Stock Buy Recommendation Reiterated (LO)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK ( TheStreet) -- Lorillard (NYSE: LO) has been reiterated by TheStreet Ratings as a buy with a ratings score of B- . The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share and expanding profit margins. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • LO's revenue growth has slightly outpaced the industry average of 3.1%. Since the same quarter one year prior, revenues slightly increased by 4.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • LORILLARD INC has improved earnings per share by 5.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, LORILLARD INC increased its bottom line by earning $8.02 versus $6.78 in the prior year. This year, the market expects an improvement in earnings ($8.56 versus $8.02).
  • The gross profit margin for LORILLARD INC is rather high; currently it is at 51.60%. 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 23.60% trails the industry average.
  • The change in net income from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Tobacco industry average. The net income has decreased by 2.4% when compared to the same quarter one year ago, dropping from $291.00 million to $284.00 million.
  • In its most recent trading session, LO has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.

Lorillard, Inc., through its subsidiaries, manufactures and sells cigarettes in the United States. It markets approximately 43 product offerings in various brand names, including Newport, Kent, True, Maverick, and Old Gold. The company has a P/E ratio of 14.4, above the average tobacco industry P/E ratio of 14.2 and below the S&P 500 P/E ratio of 17.7. Lorillard has a market cap of $15.08 billion and is part of the consumer goods sector and tobacco industry. Shares are up 3% year to date as of the close of trading on Tuesday.

You can view the full Lorillard Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

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