Reaction to Lorillard's Earnings Overblown

The one stock holding that I have that did not beat its earnings estimate, Lorillard (LO) did not perform well on Wall Street Monday and had all short term traders exiting all at one time. The report was not bad and the reaction in this Analyst's opinion was way overblown. This is a short term event and for those of you who are in it as a long term dividend play, the stock will pay you $4 a share in dividends or most of Monday’s losses over the next year.

As a Lorillard investor you have only lost money on paper and until one sells these are just paper losses. The management of the company is top notch and for those who want to see it with their own eyes here is Monday’s conference call transcript for everyone to read. (Thank you Seeking Alpha for that service).

The company is expected to earn $6.35 in Free Cash Flow in 2010, so basically we are earning $.68 cents for every dollar that Lorillard invests in Total Capital. That means that its Free Cash Flow Return on Invested Capital is 68%, which is basically three times what I am looking for as an analyst. As for its Free Cash Flow Return on Equity (FROE) it is earning about 122% 2010 FROE.

These are amazing numbers and it amazes me that anyone would sell a company that is performing that well on Main Street. Always remember that Wall Street is an opinion factory and Main Street is where reality lives. The Lemmings were out Monday on Lorillard, but if we even had half the Main Street results that Lorillard is actually putting up, it would still be putting up amazing numbers.

Disclosure: Long LO

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Comments

[John Galt:]

I'm a fellow LO long and I freaking love the stock as a core long term holding. I believe with slow GDP growth is ahead, a safe, stable, well managed Con Staple is a good investment ( I also own stocks like KO, JNJ etc.)

My take is that the stock recently ran up, and now it just ran down. I believe a lot of people "played" it as a take over candidate.

I don't think the report was bad either. Newport gained market share, increased revenue, they did well with the excise taxes, etc but didn't meet the streets estimates ( neither did the other tobacco companies). This company is a cash machine, they return cash to shareholders with a bond-like yield. They have no long term debt and cash on the balance sheet.

Oct 27 09:41 AM

[John Galt:]

I read some of your other stuff and realize we own, owned, or follow the same stocks but sometimes for different reasons.

LO
LMT
COH
JNJ

Oct 27 10:19 AM

[notsosmart:]

beats or misses is all anal-cysts crap. reminds me of the wonderful AAA rated phony crap paper that so many bought. i dont listen to or pay attention to all these experts with an agenda.my yield last year was 7.2% & with a fed tax cap @ 15% i cant complain.of course there are many smarter than me that did much better but then again how much do you need?have you got enough chinese junk? have you got your granite counter?flat tv hanging on the wall?

Oct 27 04:50 PM

[User 319463:]

I too am a long term LO investor. I could "Kick" m yself for not buying more when it traded down to $74. Live & learn.

Oct 28 01:20 PM