Lorillard (LO) Stock Lower Today as FTC Seeks to Block Reynolds American Merger

NEW YORK (TheStreet) -- Shares of Lorillard (LO) are down by 2.12% to $65.01 in pre-market trading on Tuesday morning, as the New York Post reports that the Federal Trade Commission staff is recommending a suit to block the $27 billion merger of the cigarette maker with fellow tobacco products producer Reynolds American (RAI).

Shares of Reynolds American are down by 1.32% to $68.55 in pre-market trading this morning.

FTC regulators are scheduled to meet today to vote on a proposed merger, which sources tell the Post is the Reynolds/Lorillard deal.

Reynolds American owns the cigarette brands Camel, Pall Mall, and Winston. A merger with Lorillard, which owns the Newport, Kent, and True brands, would give the combined company about 45% of the market for smokers under 30 years of age, the Post added.

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 multiple 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, good cash flow from operations, solid stock price performance and growth in earnings per share. 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 analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 23.1%. Since the same quarter one year prior, revenues slightly increased by 2.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The gross profit margin for LORILLARD INC is rather high; currently it is at 57.83%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 25.48% is above that of the industry average.
  • Net operating cash flow has increased to $619.00 million or 35.44% when compared to the same quarter last year. In addition, LORILLARD INC has also vastly surpassed the industry average cash flow growth rate of -28.20%.
  • The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • LORILLARD INC has improved earnings per share by 19.7% 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 $3.28 versus $3.14 in the prior year. This year, the market expects an improvement in earnings ($3.70 versus $3.28).
  • You can view the full analysis from the report here: LO Ratings Report

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