Lorillard Upgraded to “Outperform” at Wells Fargo; Analyst Says Selling is Overdone (LO)

Cigarette maker Lorillard Inc. ( LO ) on Tuesday received a big upgrade from analysts at Wells Fargo.

The firm boosted its rating on WFC from "Market Perform" to "Outperform" with a valuation range of $134-$136. That range suggests up to an 18% upside to the stock's Wednesday closing price of $115.45.

A Wells Fargo analyst commented, "We believe the market has overreacted over the past few months regarding concerns surrounding slower growth in Newport Menthol and pressure on margins. Therefore, we think LO presents a compelling buying opportunity for the following reasons: (1) Newport Menthol volume growth is under pressure but not as bad as feared; (2) Blu should be a key growth driver going forward; and (3) several potential positive catalysts are around the corner including increased transparency and a possible stock split. LO's stock has been under considerable pressure over the past several months due primarily to issues we have been writing about including slower growth with Newport Menthol and pressure on margins. That said, the sell off in LO is overdone and current valuation presents a compelling entry point."

Lorillard shares, which have gained around 2.5% year-to-date but have fallen substantially in recent months, rose $1.28, or +1.1%, in premarket trading Tuesday.

The Bottom Line
Shares of Lorillard ( LO ) have a 5.37% dividend yield, based on last night's closing stock price of $115.45. The stock has technical support in the $107-$110 price area. If the shares can firm up, we see overhead resistance around the $120-$122 price levels.

Lorillard Inc. ( LO ) is not recommended at this time, holding a Dividend.com DARS™ Rating of 3.4 out of 5 stars.

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