Lorrilard (LO) Stock Rising on Approval of Reynolds Merger

NEW YORK (TheStreet) -- Shares of Lorillard (LO) are increasing 1.14% to $72.95 in Wednesday's midday trading after the FTC yesterday cleared tobacco company Reynolds American (RAI) to buy Lorrillard for $27.4 billion.

Shares of Reynolds American are climbing 2.51% to $77.32.

The two cigarette makers announced their planned marriage last July, part of a three-way deal in which the companies agreed to sell $7.1 billion in cigarette brands and other assets to UK-based Imperial Tobacco Group (ITYBY) according to The Wall Street Journal.

By acquiring Lorillard, Reynolds' market share would be boosted to 34%. Meanwhile, Marlboro leads the pack with an estimated 47% of the share.

The Lorillard-Reynolds deal will reshape and further consolidate the tobacco industry, the Journal added.

Lorillard is the maker of Newport cigarettes and Reynolds is the maker of Camel and Pall Mall cigarettes.

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 few notable 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 increase in net income. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 23.2%. 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. In addition, LORILLARD INC has also vastly surpassed the industry average cash flow growth rate of -30.89%.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over 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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