Lorillard Inc (LO) 2012 Review

Lorillard Inc (LO)produces and Newport, Kent, True, Maverick and Old Gold cigarettes.

The company has grown profits per share from $5.15 in 2008 to $7.78 in 2011 and dividends per share from $1.84 in 2008 to $5.20 in 2011, earning a 100% return on equity. Despite the recent global recession, LO should continue to produce above average returns as result of:

(1) increasing market share,

(2) the strength of its Newport brand enables it to raise prices,

(3) geographic expansion,

(4) a stock buy back program.

Negatives:

(1) governments around the world are imposing restrictions on tobacco use,

(2) a highly competitive industry,

(3) the industry is not allow to advertise.

Lorillard is rated A by Value Line, has a 600% debt to equity ratio but is working hard to reduce this figure. Its stock yields 4.6%

Is Lorillard (LO) in Play?

Is Lorillard (LO) in play? This is an interesting story. From Barron's,

Lorillard's fans in the investment community say that the company is underappreciated on Wall Street -- partly because of its involvement in tobacco -- and that it is the most attractive takeover target in the consolidating global cigarette industry. There lately has been talk that Reynolds, maker of the Camel, Winston and Kool brands, might buy Lorillard for a sizable premium above the recent share price of $61. Reynolds and Lorillard declined to comment.

Deal or no deal, Lorillard looks appealing. Its shares trade at 11 times projected 2009 profit of $5.50 a share and provide a yield of 6%. Lorillard pays out 70% to 75% of its profit in dividends. The company, which was spun off by Loews (L) last year, has a great balance sheet, with more than $1 billion of cash at year end and no debt.

The dividend also gets my attention.

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Will Lorillard Meet Its Match?

Bob DeMarco is a citizen journalist and twenty year Wall Street veteran. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. Content from All American Investor has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, Blog Critics, and a growing list of newspaper websites. Bob is actively seeking syndication and writing assignments.

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