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Lorillard Slips on Downgrade

Goldman Sachs removes LO from its 'buy' list

by 10/4/2011 1:50:34 PM
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Goldman Sachs this morning removed Lorillard, Inc. (LO - 110.32) from its "buy" list for the first time since November 2005. The firm lowered the cigarette maker to "neutral," citing concerns about price deceleration and the increasingly negative view on U.S. tobacco fundamentals.

Goldman Sach's lukewarm opinion is shared by more than half of the brokerage bunch. Specifically, Zacks tallies two "strong buys" and one "buy" recommendation, compared to four "hold" suggestions.

Even though short interest on the security fell 30.1% during the past month, it now accounts for 5.6% of the stock's available float. In fact, at the stock's average rate of trading, it would take nearly one week to buy back all of these bearish bets.

Elsewhere, it seems that optimism is growing in the options arena. During the past 10 days, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 0.83 call for every put. This ratio arrives in the 69th percentile of its annual range, signaling that traders on these exchanges have made bullish bets over bearish at a faster pace than usual over the past couple weeks.

Moreover, the security's Schaeffer's put/call open interest ratio (SOIR) of 1.6 ranks in the 17th percentile of its annual range, implying that near-term option traders are more positively aligned toward LO than usual.

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