Lorillard (LO) Stock Gains Today on Potential FTC Approval of Reynolds American Merger

NEW YORK (TheStreet) -- Lorillard (LO) shares are up 0.4% to $71.09 in early market trading on Monday following reports that the Federal Trade Commission will approve Reynolds American's (RAI) $37 billion bid for the company, according to the New York Post.

If approved, the deal would combine the second and third largest cigarette manufacturers in the country as well as two of the most popular brands with young smokers, Newport and Camel. The companies have previously agreed to sell five of their brands, valued at $7 billion, to British tobacco company Imperial (ITYBY) in the event that the deal receives regulatory approval.

Industry watchers believe that Imperial will have to prove that it can become a strong third tobacco company with the assets gained from the merger of the other two company's. Imperial does not currently have a strong presence in the U.S. but the company believes that its proven success overseas will translate to America, according to the Post.

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 some important positives, 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 increase in net income. 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 5.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The gross profit margin for LORILLARD INC is rather high; currently it is at 56.45%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 22.72% is above that of the industry average.
  • Net operating cash flow has increased to $841.00 million or 19.63% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -29.58%.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 32.33% over the past year, a rise that has exceeded that of the S&P 500 Index. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Tobacco industry average. The net income increased by 1.5% when compared to the same quarter one year prior, going from $271.00 million to $275.00 million.
  • You can view the full analysis from the report here: LO Ratings Report
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