Book Gains in Lorillard Inc. (LO) Now

Currently, on a valuation basis, Reynolds is trading at a premium to its peers in the sector, so it could be time to avoid the company for now. Reynolds trades at the highest trailing-12 month P/E in the tobacco sector at 18.8 compared to the sector average of 16.7. This is also true on a forward valuation. Reynolds trades at a forward P/E of 14.8 compared to the sector average of 14.

What about Altria?

On the other hand, Altria Group Inc (NYSE:MO) is well placed to benefit from a menthol ban. You see, while Altria does have some menthol and any ban would lead to an immediate fall in revenue, the company could possibly see a trend toward its menthol-snuff products that it has available to customers. Over the longer term, Altria Group Inc (NYSE:MO) could see a rise in revenue thanks to the ban. In addition, Altria is better placed than both of its domestic peers to outlast any tobacco bans within the country as Altria is well diversified into beer through SABMiller plc (LON:SAB), wine and smokeless-tobacco products such as snuff and eCigs.

Foolish summary

All in all, whatever happens with regard to the menthol ban, Lorillard Inc. (NYSE:LO) is faced with uncertainty and uncertainty is not good for investors. It could be time to consider selling Lorillard Inc. (NYSE:LO) in favor of larger peer Altria, which appears to have a much more stable outlook.

Fool contributor Rupert Hargreaves owns shares of Altria Group (NYSE:MO). The Motley Fool has no position in any of the stocks mentioned. Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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