Event VGR reported solid 2Q07 (June) operating EPS. Raising estimates and price target. Also publishing our sum of the parts valuation figure. Key Points � VGR's operating EPS improves. VGR reported 2Q07 operating EPS of $0.27 (ex-unusual gains of $0.07) vs. $0.21 in 2Q06 (ex-debt related charges of $0.26), above our $0.24 estimate. � Sales growth accelerates as unit shipments continue to outpace the industry. Sales at the Liggett Division (99% of total) rose 25% during 2Q07. Unit growth, particularly Grand Prix, contributed 14.2% of the sales gain while favorable pricing added roughly 10%-11%. Wholesale unit shipments increased 3.8% as compared to a 4.6% decline for the industry. At retail, Liggett's unit shipments rose 4.5% versus a 2.7% decrease for the industry. Above average sales trends should continue through 3Q07. � Real-estate businesses contributing to growth in pre-tax income. Total pre-tax income rose 44% Y/Y to $30.2 million (excluding an $8.1MM gain) in the quarter. The increase was largely driven by sales gains in the tobacco business, however, a 78% increase in its real estate businesses Y/Y to $6.9MM also contributed to the gain. VGR's consolidated pre-tax income should continue to be supported by gains in real estate income. � Updating our EPS estimates. We are essentially flowing through the 2Q07 upside from our 2Q07 estimate, partially offset by higher share dilution. Therefore, our current year EPS estimate has been raised to $1.13 from $1.12, previously. Our out year EPS estimate has been raised to $0.95 from $0.93. Our estimates do not assume any potential asset sales over the next couple of years. � Sum of the parts analysis supports current valuation. We have raised our price target to a range of $21-$24 a share from $18-$21, previously, based on a very basic sum of the parts analysis. Our price target primarily reflects VGR's $1.60 annual dividend, a core tobacco business value of around $17.00-$19.00 a share, and $2.50-$3.00 a share from the company's 50% stake in Douglas Elliman Realty. In addition, VGR has ownership interests in several properties, which could be accretive in the future or sold for realized gains. While the timing is uncertain, these other real estate interests could add additional value to our targeted price range. Valuation/Risks We believe that VGR shares will trade on its $1.60 a share dividend, steady tobacco business, and a potential earnings contribution from its real estate businesses. Our revised price target of $21-$24 (from $18-$21) represents a realistic sum-of-the parts valuation. Risks: include litigation, increased regulation, tax increases, and declining cigarette consumption.