Merrill Lynch analyst raises price, rating on Lorillard stock
A Merrill Lynch tobacco analyst said she believes that Carolina Group, the tracking stock that represents Lorillard Tobacco Co., is worth more than the stock is now trading at.
The analyst raised her rating on the stock from neutral to buy.
In a note to investors on Wednesday, analyst Christine Farkas said she thought Carolina Group (NYSE: CG) had a fair price of $59 per share, and could have a value of more than $70 per share in a couple years. The stock closed Thursday at $51.92.
She said she believes the Greensboro-based tobacco company, the third largest in the nation, is likely to win a ruling, now pending in the Florida Supreme Court, over a $145 billion class-action lawsuit involving it and other tobacco companies.
If the Florida Supreme Court rules in Big Tobacco's favor, Lorillard would be released from restrictions on its balance sheet that affect how fast it can repay debt to parent company Loews Corp. (NYSE: LTR). Paying off that debt sooner would mean the company could more quickly boost its dividend payments, boosting the value of the stock.
Carolina Group in 2005 paid $1.82 per share in dividends.
Farkas also cited strong business fundamentals in Lorillard's business, including its ownership of the nation's No. 2 cigarette brand, Newport. Newport is the No. 1 menthol brand, and the market share of menthol cigarettes has been growing in the past decade, Farkas said in her report.
Carolina Group stock is a common stock issued by Lorillard parent Loews Corp. Holders of Carolina Group stock, meant to represent the economic value of the Lorillard business, are entitled to dividends paid out on the stock, though Loews Corp. has no legal obligation to continue paying those dividends.
Merrill Lynch is a market maker for Carolina Group and other tobacco stocks, and has done other business with the company in the past year.
