Lorillard Inc. (LO): A Tobacco Giant Celebrating Over 250 Years in Business

4). Decay in United States Cigarette Market: The United States cigarette market is rapidly diminishing, with 333 billion cigarettes sold in 2008 shrinking to only 265 billion currently, and further decay could pose serious problems to core business

Competition:

Major publicly traded competitors of Lorillard include Reynolds American, Inc. (NYSE:RAI), Altria Group, Inc. (NYSE:MO), Philip Morris International Inc. (NYSE:PM), and Vector Group Ltd (NYSE:VGR). All of these companies, with the exception of Philip Morris, operate in the United States tobacco industry and compete directly with Lorillard. Philip Morris operates internationally across the world in the tobacco industry. Reynolds American is valued at $24.76 billion, pays out a dividend yielding 5.33%, and carries a price to earnings ratio of 16.77. Altria is valued at $70.25 billion, pays out a dividend yielding 5.07%, and carries a price to earnings ratio of 16.84. Philip Morris is valued at $151.10 billion, pays out a dividend yielding 3.76%, and carries a price to earnings ratio of 17.48. Vector Group is valued at $1.37 billion, pays out a dividend yielding 10.20%, and carries a price to earnings ratio of 62.13.

The Foolish Bottom Line:

Financially, Lorillard is as solid as a rock. The company possesses stable revenue growth that should continue into the future, a business model producing a double digit net profit margin, and a relatively low valuation. While the company possesses a debt load, this minor fault in the business is compensated through the company’s massive and growing dividend. However, the company is located in an industry which is destined to die out in America. The industry has seen substantial decay over the past years and should continue to diminish into the future, but the industry will sustain in the United States for decades, possibly for centuries to come. All in all, Lorillard is a tremendous investment that should provide investors with solid returns well into the future.

The article A Tobacco Giant Celebrating Over 250 Years in Business originally appeared on Fool.com and is written by Ryan Guenette.

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