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E-Cigs About to Come of Age, Buy Lorillard (LO)

December 11, 2012 11:29 AM EST Send to a Friend
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A stake in Lorillard (NYSE: LO) is a stake in the future of tobacco, wrote analyst Bonnie Herzog of Wells Fargo. By future, Herzog is referring to the new vapor producing consumer products known as the electronic cigarette, or e-cigs.

Herzog is predicting a rapid pace of innovation and increasing consumer acceptance as e-cigs move closer to become the "wave of the future".

Lorillard, makers of Newport brand cigarettes, recently made a move into the e-cig category by acquiring blu e-cig, and it plans to launch a $40 million national ad campaign.

Interestingly, Herzog thinks that tobacco margins will improve with the adoption of e-Cigs.

"Given that the industry's MSA payments are volume based, as e-cigs take share from traditional cigs, the decline in these payments to the states should accelerate. In other words, the dollar amount of these MSA payments should drop faster. As a result, total tobacco margins should improve and traditional cigarette volume declines should be more than offset."

In other words, if Wells Fargo is right, e-cigs will ultimately take share and total tobacco margins will improve - a win-win for Lorillard.

Wells Fargo has an Outperform rating on Lorillard (NYSE: LO) with a price target of $133.00 to $135

For an analyst ratings summary and ratings history on Lorillard click here. For more ratings news on Lorillard click here.

Shares of Lorillard closed at $120.30 yesterday.




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