Which Tobacco Stock has the Strongest Earnings Trends?

Earnings trends are extremely important when evaluating stocks. At Wall St. Cheat Sheet, we view increasing earnings quarter-over-quarter as a simple way to gauge whether costs and the business model are stable. Then we like to analyze whether the company is outperforming peers in the sector. This is what we call the “E-Squared” investment analysis (‘E = Earnings Are Increasing Quarter-Over-Quarter’ + ‘E = Excellent Relative Performance Versus Peers and Sector’).

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Here’s your Cheat Sheet to how the top 4 tobacco stocks rank via earnings trends:

Lorillard, Inc. (NYSE:LO): Current Price $41.04

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 4,204 5,233 5,932 6,466 6,623
Diluted EPS ($) 1.717 1.92 2.26 2.663 2.81

We see healthy numbers from Lorillard with sustained year-over-year growth in both revenue and EPS.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 1,617 1,526 1,731 1,661 1,704
Diluted EPS ($) 0.7633 0.5667 0.7233 0.72 0.80

The quarterly results are somewhat erratic, but we note that EPS in the latest quarter is better than the earlier one. We’ll keep this stock under our lens…

Reynolds American Inc. (NYSE:RAI): Current Price $43.96

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 8,845 8,419 8,551 8,541 8,304
Diluted EPS ($) 2.28 1.64 1.92 2.40 2.24

We see that that both revenue and EPS trends at Reynolds are flat-to-down.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 2,083 1,933 2,176 2,117 2,078
Diluted EPS ($) 0.52 0.47 0.78 0.74 0.25

The quarterly numbers are rather unsatisfactory, with jumpy revenue growth and a sharp dip in the EPS in the latest quarter. We’ll have to move on from Reynolds…

Altria Group Inc. (NYSE:MO): Current Price $34.42

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 19,360 23,560 24,360 23,800 24,620
Diluted EPS ($) 2.36 1.54 1.87 1.64 2.06

Altria reported a a good year in 2012 with reasonable growth in the topline and EPS.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 6,129 5,647 6,487 6,242 6,242
Diluted EPS ($) 0.41 0.48 0.60 0.32 0.55

Though revenue growth could be better, we do note that EPS showed a nice jump in the December 2012 quarter. Altria remains on the list…

Philip Morris International, Inc. (NYSE:PM): Current Price $90.18

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 63,640 62,080 67,710 76,350 77,390
Diluted EPS ($) 3.31 3.24 3.92 4.85 5.17

Philip Morris International has posted steady annual growth in the topline and EPS.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 18,880 18,020 20,040 19,590 19,740
Diluted EPS ($) 1.09 1.25 1.36 1.32 1.25

EPS is unfortunately down quarter-over-quarter after June 2012. We drop Philip Morris from this analysis.

Conclusion

Only Lorillard and Altria are left standing in thisĀ ”E-Squared” investment analysis. We pick Lorillard for the better quality of its longer-term revenue and profit growth compared to Altria.

“E = Earnings Are Increasing Quarter-Over-Quarter” is a core component of our successful CHEAT SHEET investing framework. Don’t waste another minute – click here to discover our CHEAT SHEET stock picks now!