Quick Take: Lorillard Inc.

Steve Alexander submits:

Lorillard (LO) is the third largest cigarette producer in the United States. The company was spun off from conglomerate Loews (L) back in June of this year. Lorillard's golden asset is the Newport menthol cigarette brand. Newport has a market share of close to 35% in the menthol cigarette category, which is good enough to earn Lorillard a 10% total market share, behind only Altria (MO) and Reynolds American (RAI) in the United States. Newport accounts for over 90% of sales, but the company also produces other, non-menthol branded cigarettes under the names Kent, Satin, True, and Max. Old Gold and Maverick brands round out the portfolio on the discount rack.

Lorillard reminds me a lot of a similar company I reviewed earlier this year: UST Inc. (UST). UST has many parallels to Lorillard. It dominated the smokeless tobacco category with premium brand Copenhagen, which is similar to Newport. UST was in good financial shape and paid a generous dividend, like Lorillard (over 6.8% currently). However, I though UST had too few growth opportunities and that the price was not low enough given that fact. My final opinion of Lorillard falls almost exactly along those lines. Of course, a few months later, UST was purchased by Altria at a 35% premium, so take that for what it's worth!

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