"The wicked work harder to preach hell than the righteous do to get to heaven."
American Proverb
Lorillard, Inc. (LO), founded in 1760 manufacturers and sells cigarettes in the United States; Newport, Kent, True, Old gold and Maverick are some of its top selling brands. Its products are primarily sold to wholesale distributors; these wholesale distributors service chain stores, retail outlets, government agencies (U.S. Armed forces), etc. We like Lorillard for the following reasons:
It approved a 19% increase in its quarterly dividend from $1.30-$1.55 per share.
Earnings per share are projected to increase from $7.88 in 2011, to $8.92 in 2012 to $9.87 in 2013.
It continues to gain market share in a declining industry. Newport is the largest menthol brand in the US. Its domestic market share climbed 0.8 points and now stands at 14% in the 4th quarter. For 2011, its share soared to 14.1%. Its brand name enables it to charge premium prices, which add to profitability.
The launch of the new port Non-menthol brand appears to be well received and should contribute to the bottom line and help it increase local market share.
Reasons to be bullish on Lorillard, Inc Common Stock (LO):
- It has a strong free cash flow of $1.19 billion.
- A dividend yield of 4.65%
- A strong 5 year dividend growth rate of 29%
- A five year dividend average of 4.56%
- It is the 3rd largest cigarette producer in the US; it has a strong and flexible balance sheet, produces boat loads of free cash and earnings.
- Net income has increased from $948 million in 2009 to $1.16 billion in 2011.
- Annual EPS before NRI has increased from $4.91 in 2007 to $7.88 in 2011
- Sales have risen nicely over the past three years from $5.2 billion in 2009 to $6.4 billion in 2011.
- Zacks projects a 3-5 year EPS growth rate of 11%
- A current ratio of 1.73
- A strong ROI of 92%
- A decent payout ratio of 66%
- A decent quick ratio of 1.54
- A strong interest coverage ratio of 15.14
- A 5 year average payout ratio of 60%
- 4th quarter adjusted (Non-GAP) diluted earnings per share increased 26.4% compared to last year.
- 4th quarter (GAAP) diluted earnings per share increased 33.3% versus last year to 2.32 and annual diluted earnings per share increased 17.8% to $7.99.
- Net sales in the 4th quarter increased by 8.9% to $1.61 billion; annual sales increased by 9% to $6.45 billion.
- It repurchases 3.3 million shares in the 4th quarter at a cost of $366 million, under the $750 million program that it announced in August of 2011.
- It has a decent free cash flow yield of 6.5%
- It also sports a revenue growth rate of 8.89%
- 100K invested for 10 years would have grown to $792K.
click to enlarge
Many key ratios will be covered in this article and investors would do well to get handle on some of the more important ones which are dealt with below.
Long-term debt-to-equity ratio - is the total long term debt divided by the total equity. The amount of long-term debt a company carries on its balances sheet is very important for it indicates the amount of money a company owes that it doesn't expect to pay off in the next year. A balance sheet that illustrates that long term debt has been decreasing for a few years is a sign that the company is doing well. When debt levels fall, and cash levels increase the balance sheet is said to be improving and vice versa. If a company has too much debt on its books, it could end up being overwhelmed with interest payments and risk having too little working capital which could in the worst case scenario lead to bankruptcy.
Operating cash flow -is generally a better metric than earnings per share because a company can show positive net earnings and still not be able to properly service its debt; the cash flow is what pays the bills.
The payout ratio -tells us what portion of the profit is being returned to investors. A pay out ratio over 100% indicates that the company is paying out more money to shareholders, then they are making; this situation cannot last forever. In general if the company has a high operating cash flow and access to capital markets, they can keep this going on for a while. As companies usually only pay the portion of the debt that is coming due and not the whole debt, this technique/trick can technically be employed to maintain the dividend for sometime. If the payout ratio continues to increase, the situation warrants close monitoring as this cannot last forever; if your tolerance for risk is a low, look for similar companies with the same or higher yields, but with lower payout ratios. Individuals searching for other ideas might find this article to be of 5 Covered Writes: 2 Excellent, 2 Good And 1 Middling
Current Ratio -is obtained by dividing the current assets by current liabilities. This ratio allows you to see if the company can pay its current debts without potentially jeopardizing their future earnings. Ideally the company should have a ratio of 1 or higher.
Price to free cash flow- is obtained by dividing the share price by free cash flow per share. Higher ratios are associated with more expensive companies and vice versa; lower ratios are generally more attractive. If a company generated 400 million in cash flow and then spent 100 million on capital expenditure, then its free flow is $300 million. If the share price is 100 and the free cash flow per share are $5, then company trades at 20 times-free cash flow. This ratio is also useful because it can be used as a comparison to the average within the industry; this gives you an idea of how the company you are interested in holds up to the other companies within the industry.
Interest coverage- is usually calculated by dividing the earnings before interest and taxes for a period of 1 year by the interest expenses for the same time period. This ratio informs you of a company's ability to make its interest payments on its outstanding debt. Lower interest coverage ratios indicate that there is a larger debt burden on the company and vice versa. For example if a company has an interest ratio of 11.8, this means that it covers interest expenses 11.8 times with operating profits.
Price to tangible book is- obtained by dividing share price by tangible book value per share. The ratio gives investors some idea of whether they are paying too much for what would be left over if the company were to declare bankruptcy immediately. In general stocks that trade at higher price to tangible book value could leave investors facing a great percentage per share loss than those that trade at lower ratios. The price to tangible book value is theoretically the lowest possible price the stock would trade to. Additional key metrics are addressed in this article 5 Dividend Champs: Halliburton Our Top Pick
Company: Lorillard Co
Levered Free Cash Flow = 1.19B
Basic Key ratios
Percentage Held by Insiders = 0.33Number of Institutional Sellers 12 Weeks = 4Growth
Net Income ($mil) 12/2011 = 1116Net Income ($mil) 12/2010 = 1029Net Income ($mil) 12/2009 = 94812months Net Income this Quarterly/ 12months Net Income 4Q's ago = 8.56Quarterly Net Income this Quarterly/ same Quarter year ago = 19.69 EBITDA ($mil) 12/2011 = 1932EBITDA ($mil) 12/2010 = 1764EBITDA ($mil) 12/2009 = 1578Net Income Reported Quarterlytr ($mil) = 310Annual Net Income this Yr/ Net Income last Yr = 8.46Cash Flow ($/share) 12/2011 = 8.43Cash Flow ($/share) 12/2010 = 7.11Cash Flow ($/share) 12/2009 = 6.1 Sales ($mil) 12/2011 = 6466Sales ($mil) 12/2010 = 5932Sales ($mil) 12/2009 = 5233 Annual EPS before NRI 12/2007 = 4.91Annual EPS before NRI 12/2008 = 5.15Annual EPS before NRI 12/2009 = 5.76Annual EPS before NRI 12/2010 = 6.78Annual EPS before NRI 12/2011 = 7.88Dividend history
Dividend Yield = 4.65Dividend Yield 5 Year Average 12/2011 = 4.56Dividend Yield 5 Year Average 09/2011 = 4.56Annual Dividend 12/2011 = 5.2Annual Dividend 12/2010 = 4.25Forward Yield = 4.65Dividend 5 year Growth 12/2011 = 29.5Dividend sustainability
Payout Ratio 06/2011 = 0.66Payout Ratio 5 Year Average 12/2011 = 0.61Payout Ratio 5 Year Average 09/2011 = 0.61Payout Ratio 5 Year Average 06/2011 = 0.6Change in Payout Ratio = 0.05Performance
Percentage Change Price 52 Weeks Relative to S&P 500 = 31Next 3-5 Year Estimate EPS Growth rate = 11EPS Growth Quarterly(1)/Q(-3) = -128.66Return on Investment 06/2011 = 92.58Current Ratio 06/2011 = 1.73Current Ratio 5 Year Average = 1.85Quick Ratio = 1.54Cash Ratio = 1.48Interest Coverage Quarterly = 15.14Valuation
Book Value Quarterly = -11.21Price/ Cash Flow = 15.83Price/ Sales = 2.72EV/EBITDA 12 Mo = 9.61Company: Reynolds American (RAI)
Levered Free Cash Flow = 1.59B
Basic Key ratios
Percentage Held by Insiders = 0.17Number of Institutional Sellers 12 Weeks = 14Growth
Net Income ($mil) 12/2011 = 1406Net Income ($mil) 12/2010 = 1121Net Income ($mil) 12/2009 = 95512months Net Income this Quarterly/ 12months Net Income 4Q's ago = 19.32Quarterly Net Income this Quarterly/ same Quarter year ago = -1.62 EBITDA ($mil) 12/2011 = 2545EBITDA ($mil) 12/2010 = 2614EBITDA ($mil) 12/2009 = 1917Net Income Reported Quarterlytr ($mil) = 304Annual Net Income this Yr/ Net Income last Yr = 25.42Cash Flow ($/share) 12/2011 = 3.06Cash Flow ($/share) 12/2010 = 2.8Cash Flow ($/share) 12/2009 = 2.57 Sales ($mil) 12/2011 = 8541Sales ($mil) 12/2010 = 8551Sales ($mil) 12/2009 = 8419 Annual EPS before NRI 12/2007 = 2.29Annual EPS before NRI 12/2008 = 2.4Annual EPS before NRI 12/2009 = 2.32Annual EPS before NRI 12/2010 = 2.49Annual EPS before NRI 12/2011 = 2.81Dividend history
Dividend Yield = 5.4Dividend Yield 5 Year Average 12/2011 = 6.38Dividend Yield 5 Year Average 09/2011 = 6.38Annual Dividend 12/2011 = 2.15Annual Dividend 12/2010 = 1.84Forward Yield = 5.4Dividend 5 year Growth 12/2011 = 7.2Dividend sustainability
Payout Ratio 06/2011 = 0.84Payout Ratio 5 Year Average 12/2011 = 0.76Payout Ratio 5 Year Average 09/2011 = 0.76Payout Ratio 5 Year Average 06/2011 = 0.76Change in Payout Ratio = 0.07Performance
Percentage Change Price 52 Weeks Relative to S&P 500 = 8.43Next 3-5 Year Estimate EPS Growth rate = 6.03EPS Growth Quarterly(1)/Q(-3) = -122.03ROE 5 Year Average 12/2011 = 20.62ROE 5 Year Average 09/2011 = 20.62ROE 5 Year Average 06/2011 = 20.49Return on Investment 06/2011 = 15.88Debt/Total Cap 5 Year Average 12/2011 = 37.36Debt/Total Cap 5 Year Average 09/2011 = 37.36Debt/Total Cap 5 Year Average 06/2011 = 37.4 Current Ratio 06/2011 = 1.01Current Ratio 5 Year Average = 1.2Quick Ratio = 0.78Cash Ratio = 0.73Interest Coverage Quarterly = 11.55Valuation
Book Value Quarterly = 10.72Price/ Book = 3.87Price/ Cash Flow = 13.55Price/ Sales = 2.78EV/EBITDA 12 Mo = 9.82Company: Vector Grp Ltd (VGR)
Levered Free Cash Flow = 73.27M
Basic Key ratios
Percentage Held by Insiders = 20
Growth
Net Income ($mil) 12/2011 = 75Net Income ($mil) 12/2010 = 54Net Income ($mil) 12/2009 = 2512months Net Income this Quarterly/ 12months Net Income 4Q's ago = 38.71Quarterly Net Income this Quarterly/ same Quarter year ago = -35.11 EBITDA ($mil) 12/2011 = 234EBITDA ($mil) 12/2010 = 180EBITDA ($mil) 12/2009 = 107Net Income Reported Quarterlytr ($mil) = 8Annual Net Income this Yr/ Net Income last Yr = 38.72Cash Flow ($/share) 12/2011 = 0.8Cash Flow ($/share) 12/2010 = 0.88Cash Flow ($/share) 12/2009 = 0.8 Sales ($mil) 12/2011 = 1133Sales ($mil) 12/2010 = 1063Sales ($mil) 12/2009 = 801 Annual EPS before NRI 12/2007 = 0.72Annual EPS before NRI 12/2008 = 0.73Annual EPS before NRI 12/2009 = 0.65Annual EPS before NRI 12/2010 = 0.73Annual EPS before NRI 12/2011 = 0.66Dividend history
Dividend Yield = 8.98Dividend Yield 5 Year Average 12/2011 = 9.46Dividend Yield 5 Year Average 09/2011 = 9.46Annual Dividend 12/2011 = 1.56Annual Dividend 12/2010 = 1.49Forward Yield = 8.98Dividend 5 year Growth 12/2011 = 5.04Dividend sustainability
Payout Ratio 06/2011 = 2.57Payout Ratio 5 Year Average 12/2011 = 2.08Payout Ratio 5 Year Average 09/2011 = 2.08Payout Ratio 5 Year Average 06/2011 = 2.06Change in Payout Ratio = 0.48Performance
Percentage Change Price 52 Weeks Relative to S&P 500 = 0.76EPS Growth Quarterly(1)/Q(-3) = 122.63ROE 5 Year Average 12/2011 = 246.47ROE 5 Year Average 09/2011 = 246.47ROE 5 Year Average 06/2011 = 230.85Return on Investment 06/2011 = 10.06Debt/Total Cap 5 Year Average 12/2011 = 81.22Debt/Total Cap 5 Year Average 09/2011 = 81.22Debt/Total Cap 5 Year Average 06/2011 = 78.23 Current Ratio 06/2011 = 1.62Current Ratio 5 Year Average = 2.21Quick Ratio = 1.27Cash Ratio = 1.16Interest Coverage Quarterly = 1.49Valuation
Book Value Quarterly = -1.12Price/ Cash Flow = 22.16Price/ Sales = 1.25EV/EBITDA 12 Mo = 7Company: Sanofi-Aventis (SNY)
Levered Free Cash Flow = 7.22B
Basic Key ratios
Percentage Held by Insiders = 1
Growth
Net Income ($mil) 12/2011 = 8265Net Income ($mil) 12/2010 = 7597Net Income ($mil) 12/2009 = 793712months Net Income this Quarterly/ 12months Net Income 4Q's ago = 13.26Quarterly Net Income this Quarterly/ same Quarter year ago = 216.95 EBITDA ($mil) 12/2011 = 15143EBITDA ($mil) 12/2010 = 14246EBITDA ($mil) 12/2009 = 15448Net Income Reported Quarterlytr ($mil) = 1887Annual Net Income this Yr/ Net Income last Yr = 8.78Cash Flow ($/share) 12/2011 = 7.35Cash Flow ($/share) 12/2010 = 7.39Cash Flow ($/share) 12/2009 = 7.07 Sales ($mil) 12/2011 = 45972Sales ($mil) 12/2010 = 41395Sales ($mil) 12/2009 = 40201 Annual EPS before NRI 12/2007 = 3.64Annual EPS before NRI 12/2008 = 3.98Annual EPS before NRI 12/2009 = 4.45Annual EPS before NRI 12/2010 = 4.81Annual EPS before NRI 12/2011 = 4.36Dividend history
Dividend Yield = 3.54Dividend Yield 5 Year Average 12/2011 = 3.34Dividend Yield 5 Year Average 09/2011 = 3.34Annual Dividend 12/2011 = 1.37Annual Dividend 12/2010 = 1.1Forward Yield = 7.4Dividend 5 year Growth 12/2011 = 5.26Dividend sustainability
Payout Ratio 06/2011 = 0.34Payout Ratio 5 Year Average 12/2011 = 0.27Payout Ratio 5 Year Average 09/2011 = 0.27Payout Ratio 5 Year Average 06/2011 = 0.27Change in Payout Ratio = 0.07Performance
Percentage Change Price 52 Weeks Relative to S&P 500 = 0.96Next 3-5 Year Estimate EPS Growth rate = 1.9EPS Growth Quarterly(1)/Q(-3) = 116.39ROE 5 Year Average 12/2011 = 16.36ROE 5 Year Average 09/2011 = 16.36ROE 5 Year Average 06/2011 = 16.33Return on Investment 06/2011 = 11.19Debt/Total Cap 5 Year Average 12/2011 = 12.09Debt/Total Cap 5 Year Average 09/2011 = 12.09Debt/Total Cap 5 Year Average 06/2011 = 12.09 Current Ratio 06/2011 = 1.54Current Ratio 5 Year Average = 1.58Quick Ratio = 1.09Cash Ratio = 0.5Interest Coverage =12.10Valuation
Book Value Quarterly = 29.95Price/ Book = 1.32Price/ Cash Flow = 5.37Price/ Sales = 2.19EV/EBITDA 12 Mo = 7.61Company: Pepsico Inc (PEP)
Levered Free Cash Flow = 4.83B
Basic Key ratios
Percentage Held by Insiders = 0.37Number of Institutional Sellers 12 Weeks = 1Growth
Net Income ($mil) 12/2011 = 6443Net Income ($mil) 12/2010 = 6320Net Income ($mil) 12/2009 = 594612months Net Income this Quarterly/ 12months Net Income 4Q's ago = 1.95Quarterly Net Income this Quarterly/ same Quarter year ago = 3.66 EBITDA ($mil) 12/2011 = 12427EBITDA ($mil) 12/2010 = 11462EBITDA ($mil) 12/2009 = 10111Net Income Reported Quarterlytr ($mil) = 1415Annual Net Income this Yr/ Net Income last Yr = 1.95Cash Flow ($/share) 12/2011 = 6.25Cash Flow ($/share) 12/2010 = 5.68Cash Flow ($/share) 12/2009 = 4.79 Sales ($mil) 12/2011 = 66504Sales ($mil) 12/2010 = 57838Sales ($mil) 12/2009 = 43232 Annual EPS before NRI 12/2007 = 3.38Annual EPS before NRI 12/2008 = 3.68Annual EPS before NRI 12/2009 = 3.71Annual EPS before NRI 12/2010 = 4.13Annual EPS before NRI 12/2011 = 4.4Dividend history
Dividend Yield = 3.1Dividend Yield 5 Year Average 12/2011 = 2.8Dividend Yield 5 Year Average 09/2011 = 2.8Annual Dividend 12/2011 = 2.03Annual Dividend 12/2010 = 1.89Forward Yield = 3.1Dividend 5 year Growth 12/2011 = 7.55Dividend sustainability
Payout Ratio 06/2011 = 0.47Payout Ratio 5 Year Average 12/2011 = 0.47Payout Ratio 5 Year Average 09/2011 = 0.47Payout Ratio 5 Year Average 06/2011 = 0.47Change in Payout Ratio = -0.01Performance
Percentage Change Price 52 Weeks Relative to S&P 500 = -4.3Next 3-5 Year Estimate EPS Growth rate = 8EPS Growth Quarterly(1)/Q(-3) = -155.41ROE 5 Year Average 12/2011 = 34.67ROE 5 Year Average 09/2011 = 34.67ROE 5 Year Average 06/2011 = 34.58Return on Investment 06/2011 = 15.82Debt/Total Cap 5 Year Average 12/2011 = 36.54Debt/Total Cap 5 Year Average 09/2011 = 36.54Debt/Total Cap 5 Year Average 06/2011 = 35.24 Current Ratio 06/2011 = 0.96Current Ratio 5 Year Average = 1.21Quick Ratio = 0.75Cash Ratio = 0.37Interest Coverage Quarterly = 8.35Valuation
Book Value Quarterly = 13.44Price/ Book = 4.95Price/ Cash Flow = 10.65Price/ Sales = 1.59EV/EBITDA 12 Mo = 9.79Conclusion
The markets are rather overbought and need to let out some steam; prudent investors would do well to wait for a strong pullback before committing funds to this market. A pullback in the 7-12% ranges would qualify as a strong pullback.
Disclaimer: This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Note on the data in this article: EPS, Price, EPS surprise charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Consensus estimate analysis table sourced from reuters.com. Free cash flow yield, income from cont operations, and revenue growth sourced from Ycharts.com.
No comments:
Post a Comment