Magazine

Inside Wall Street


Why the New Lorillard Could Light Up

The U.S. cigarette market is not as robust as it once was, but Lorillard (LO), the nation's No. 3 tobacco company, spun off by Loews on June 10, is nonetheless attracting the smart-money crowd. Goldman Sachs (GS) quickly added Lorillard to its top buy list the day it began trading on its own. It is "positioned to deliver the best top-line growth among U.S. cigarette companies over the next several years," says Goldman's Judy Hong.

Concerns about the U.S. cigarette "legislative backdrop," she says, have created an "attractive entry point" to the stock. Before the spin-off it traded as Carolina Group (CG), a tracking stock for Loews' tobacco operations. Hong has a 12-month target of 89 for the stock, now at 71.75. Charles Norton, portfolio manager at Vice Fund (VICEX), which invests mainly in tobacco, liquor, and casino companies, says there are plenty of reasons to buy Lorillard: Its addition to the Standard & Poor's 500-stock index is a big plus, and a likely hike in dividends and possible share buybacks should propel it higher. Norton says the company's success in menthols—its popular Newport brand continues to gain share—helps offset slowing overall cigarette sales in the U.S. Overseas, sales continue to rise.

Some analysts, including Hong, expect Lorillard to end up as a buyout target. "We see the likelihood of Lorillard being acquired in the not-too-distant future," says Hong.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Verizon: Sitting Pretty with Alltel

Crimped consumer spending and rising competition are weighing down shares of Verizon Communications (VZ): They fell to 35.98 on June 18, down from 46 in October. And Verizon's recent $28 billion bid for Alltel added to the slump. But acquiring Alltel, which had $8 billion in 2007 revenues, will "cement Verizon's market leadership" in wireless, says Tom Watts of investment firm Cowen, who rates the stock outperform.

Adding Alltel's 13 million cellular subscribers to its own 67 million will give a hefty boost to Verizon's wireless business, while leaving Sprint Nextel (S) and T-Mobile (DT) "decidedly sub-scale compared with Verizon and AT&T (T)," says Watt. He has upped his 2009 earnings forecast for Verizon to $3.11 a share from $2.97, compared with $2.64 in 2008. Todd Rosenbluth of S&P (MHP) rates Verizon a buy and says Alltel will provide positive strategic benefits.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Heaven for Hypochondriacs

Investors are being drawn to the interactive database of A.D.A.M. (ADAM), which provides info on diseases, symptoms, and treatment. A.D.A.M., which stands for Animated Dissection of Anatomy for Medicine, furnishes a virtual encyclopedia on health and medicine to outfits such as the Cleveland Clinic, Manhattan's Lenox Hill Hospital, and The New York Times (NYT),which uses the data for its online Health Guide. A.D.A.M. embeds its content in clients' Web sites.

Demand is strong for the library, says Tim Brown of Roth Capital Partners. He figures A.D.A.M. will earn 39 cents a share in 2008 and 56 cents in 2009, up from 28 cents in 2007. He recommends the stock, now at 7.52, as a buy. A.D.A.M. is a "compelling play on an "evolving consumer-directed health-care marketplace," says Chad Bennett of Northland Securities. He rates the stock outperform with a 12-month target of 10.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Marcial writes the Inside Wall Street column for BusinessWeek. In 2008, FT Press published the book Gene Marcial's 7 Commandments of Stock Investing.


American Apparel's Future
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus