Morningstar Rating

Stock Research and Analysis

by Philip Gorham, CFA, FRM

Bulls Say

Newport is the dominant menthol cigarette brand, controlling 40% of the menthol category and 12.5% of the overall U.S. cigarette market.
The overall menthol category has been gaining share and Newport volume actually increased from 2007 to 2012, while the overall cigarette market in the U.S. was in a state of decline. Menthol cigarettes now make up 31.4% of the total market, compared with 26.0% in 2002.
Lorillard's blu is the leading e-cigarette brand in the U.S. Read more 

Bears Say

There is material downside risk to Lorillard's market value if the proposed sale of the firm to Reynolds American does not receive regulatory and shareholder approval.
Lorillard is not quite a one-trick pony, but it is close to being one. Newport accounted for 84% of cigarette volume in 2013, leaving it highly undiversified and vulnerable to any negative regulatory developments in the menthol category.
Having sold the international rights to its brands in 1977, Lorillard cannot profit from the Newport brand in overseas markets. Read more 

Management

We are raising our stewardship rating for Lorillard to Exemplary from Standard. CEO Murray Kessler's track record in the tobacco industry is outstanding. As CEO of UST, he oversaw the sale of the business to Altria in 2008 at a 30% premium to its market   Read more 

Profile

Lorillard is the third-largest manufacturer of cigarettes in the United States. Its flagship brand, Newport, claims an almost 15% share of the total U.S. cigarette market   Read more 

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