The upgrades come along with a increase to the price target of Lorillard and Reynolds from $57 and $55 to $65 and $56, respectively.
Adelman noted that he still has concerns about low ROIC and FTC risk. However, he said he now views the risk-reward of Lorillard and Reynolds as being more balanced. He also called the consensus "overly cautious" on the deal closure between the two companies.
In terms of FTC risk, Adelman noted that he still believes that it is "more likely than not" that the deal will receive approval.
As potential catalysts for Lorillard, Adelman is looking for an outcome to the FDA's review of menthol, a decision from the FTC and improved performance indicators of Newport Non-menthol.
For Reynolds, Adelman noted "key value drivers" including the potential for British American Tobacco to acquire the remaining 58 percent of Reynolds, accretion from Lorillard acquisition and the scale of incremental cost savings.
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