Watch Out: Barbarians At The Gate For Lorillard (LO)

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.

Trade-Ideas LLC identified Lorillard ( LO) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Lorillard as such a stock due to the following factors:

  • LO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $144.6 million.
  • LO has traded 320,994 shares today.
  • LO traded in a range 208.7% of the normal price range with a price range of $1.64.
  • LO traded above its daily resistance level (quality: 5 days, meaning that the stock is crossing a resistance level set by the last 5 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on LO:

Lorillard, Inc., through its subsidiaries, manufactures and sells cigarettes in the United States. The company operates through two segments, Cigarettes and Electronic Cigarettes. The stock currently has a dividend yield of 4%. LO has a PE ratio of 19.7. Currently there is 1 analyst that rates Lorillard a buy, 1 analyst rates it a sell, and 3 rate it a hold.

The average volume for Lorillard has been 1.9 million shares per day over the past 30 days. Lorillard has a market cap of $22.2 billion and is part of the consumer goods sector and tobacco industry. The stock has a beta of 0.64 and a short float of 1.7% with 2.46 days to cover. Shares are up 23.5% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Lorillard as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, good cash flow from operations and expanding profit margins. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

Highlights from the ratings report include:
  • LO's revenue growth has slightly outpaced the industry average of 0.1%. Since the same quarter one year prior, revenues slightly increased by 1.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • LORILLARD INC has improved earnings per share by 15.9% 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 $3.14 versus $2.81 in the prior year. This year, the market expects an improvement in earnings ($3.37 versus $3.14).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Tobacco industry average. The net income increased by 12.0% when compared to the same quarter one year prior, going from $258.00 million to $289.00 million.
  • Net operating cash flow has increased to $635.00 million or 14.82% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -15.16%.
  • The gross profit margin for LORILLARD INC is rather high; currently it is at 55.09%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 21.81% trails the industry average.

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

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