Goldman Sachs Remains Buyers Of Lorillard

Goldman Sachs has a Buy rating and a $118 price target on shares of Lorillard, Inc. LO, as it believes the sell off in Lorillard has been overdone. In a note to investors, Goldman Sachs writes, "While LO shares could be choppy in the near term, we believe the likelihood that TPSAC proposes significant and substantive changes to the menthol report is low and see the recent decline in share price as another buying opportunity for long-term investors. (1) The FDA has clearly stated during the March 18 meeting that no substantive changes in scientific findings, conclusions or recommendations will be made once the report is submitted. (2) Commentary by Samet post the March 18 meeting would suggest a low likelihood of a stronger recommendation language – Samet and Benowitz published an article in the New England Journal of Medicine backing their recommendation and suggesting that TPSAC was not charged with the responsibility or expertise to recommend regulatory options (i.e. recommending an outright ban). (3) Risk/reward more attractive as we see price floor of $90 if sentiment returns to where it was during TPSAC hearings – At the end of February, the height of the TPSAC overhang, LO was trading at a 21-22% NTM P/E discount to RAI and a 17-18% discount to MO, which would put the stock today at around $90. On the other hand, the stock could revert back to around $115 if the proposed changes by TPSAC turn out to be benign." Shares of Lorillard lost $7.83 yesterday to close at $99.90, a loss of 7.27%.