Morningstar Rating

Stock Research and Analysis

by Dave Sekera, CFA

Bulls Say

Newport is the dominant menthol cigarette brand, controlling 37% of the menthol category and 12.5% of the overall U.S. cigarette market.
The overall menthol category has been gaining share and Newport volumes 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. Read more 

Bears Say

Lorillard generates roughly 90% of its revenue from Newport, 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.
Competitors Salem and Kool once enjoyed commanding share of the menthol category in the 1950s and 1960s, but meaningfully lost share as consumers' tastes changed. Should consumers no longer take pleasure in Newport, Lorillard's financial results will suffer. Read more 

Management

We believe that Lorillard's management team has been a standard steward of shareholders' capital. We applaud the company's laser focus on the menthol category and for steadily growing the Newport brand. Given the lack of acquisitions available for domestic   Read more 

Profile

Lorillard is the third-largest manufacturer of cigarettes in the United States. Its flagship brand, Newport, claims a 12.5% share of the total U.S. cigarette market, and   Read more 

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