Altria, Lorillard Ratings Cut to Hold

Source from:  TheStreet 09/26/2010

NEW YORK (TheStreet) -- Stifel Nicolaus has lowered its ratings on Altria(MO) and Lorillard(LO) to hold from buy citing the narrowing of the relative valuation gap between U.S. tobacco stocks and the S&P 500 and consumer staples. "U.S. Tobacco stocks have been very strong performers over the past two years … as the industry navigated its way superbly through a very difficult operating environment replete with major tax increases (both federal and state), litigation challenges (largely "won" most of these challenges), and regulatory threats (FDA in particular)," analyst Christopher Growe wrote in an equity research report. "Amid this environment, the industry, led by Altria, continued to price up significantly creating a strong profit algorithm over this period. In addition, the consumer, weak as he or she may be, continues to be attracted to the premium brands in the category -- Marlboro and Newport in particular continue to gain market share." "However, with the stocks having crossed or at least moved very close to our target prices, we feel most comfortable moving to the sidelines and to a hold rating for both stocks." Growe said the biggest risks to the new hold ratings are the companies' continued solid EPS growth, no real change in multiples and strong dividends yields -- helping supply upside potential for investors. Amid all this, Growe said he is left recommending only Philip Morris International(PM_) within his tobacco coverage. He maintains his buy rating for Philip Morris International and increases his price target for the stock to $62 from $56 previously. Altria stock was falling 1.6% to $23.49 in morning trading while Lorillard was lower by 1.4% to $80.75. Shares of Philip Morris International stock were down 0.5% to $54.92. Enditem