Why Lorillard (LO) Is Up Today

NEW YORK (TheStreet) -- Lorillard (LO) shares were gaining 7.2% to $52.59 Monday following reports that Reynolds American (RAI) is looking into making a bid for the cigarette maker.

Shares of Reynolds American were also gaining, up 3.7% to $52.71.

According to Financial Times, Reynolds could make a bid for its competitor that values the company at $60 a share.

More than 80% of Lorillard's sales come from the Newport brand of menthol cigarettes, which hasn't seen the same sales declines as the rest of the industry. Lorillard also owns the Blue brand of electronic cigarettes.

While reports of the deal caused both stocks to rise, Wells Fargo warns a deal may be unlikely. The firm said Reynolds may wait for more FDA clarity on menthol regulation and e-cigarette regulation before pursuing a deal.

Must read: E-Cigarettes Are Smoking the Competition: Update

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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 revenue growth, expanding profit margins and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

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