We reaffirm our Neutral recommendation on
) following an appraisal of its fourth quarter 2012 results.
Why the Reiteration?
Lorillard's fourth quarter earnings of 79 cents per share
exceeded the prior-year earnings by 8.2% and the Zacks Consensus
Estimate by 3.9%. The results benefited from top-line growth,
lower share count owing to the company's share buyback program
and favorable tax rates.
Net sales of $1.70 billion surpassed the Zacks Consensus
Estimate and went up 5.3% from the prior year on the back of
increased revenues from its cigarettes and electronic cigarettes
We are encouraged by the company's dominant share in the
cigarettes market with the rising popularity of its Newport and
Maverick brands, despite slowdown in the cigarette industry.
Lorillard's Newport brand has been able to increase its domestic
market share since 2009, even with higher cigarette pricing. The
brand name has thus enabled the company to charge premium prices,
resulting in profitability.
Moreover, Lorillard is adapting to changing consumer demands
by investing in less-hazardous alternatives for tobacco with the
acquisition of blu e-Cigs brand. With the acquisition of blu
e-Cigs in Apr 2012, the company forayed into the developing and
profitable electronic cigarette market. In addition, blu e-Cigs
look like traditional cigarettes but do not produce tobacco
smoke, ash or smell, encouraging consumers to switch to
electronic cigarettes to quit smoking.
In addition, Lorillard is one of the most efficient and
aggressive companies in the tobacco industry that regularly
increases shareholder return through dividend and share
repurchase activities. The company has rewarded its shareholders
and increased dividend payment every year. Over the long term,
Lorillard expects to return approximately 70-75% of its earnings
to shareholders in the form of dividends.
Lorillard holds a Zacks Rank #2 (Buy). Other cigarette company
which is worth considering is
Altria Group Inc.
). Other consumer staples stocks that warrant a look are
Flower Foods Inc
). While Flower Foods holds a Zacks Rank #1 (Strong Buy), Kellogg
and Altria carry a Zacks Rank #2 (Buy).
FLOWERS FOODS (FLO): Free Stock Analysis
KELLOGG CO (K): Free Stock Analysis Report
LORILLARD CO (LO): Free Stock Analysis Report
ALTRIA GROUP (MO): Free Stock Analysis Report
To read this article on Zacks.com click here.