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Why Did Reynolds American Rise on June 20?

Gabriel Kane - Author

Dec. 4 2020, Updated 10:52 a.m. ET

Price movement 

Reynolds American (RAI) has a market cap of $73.4 billion. It rose by 1.6% to close at $51.03 per share on June 20, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 0.51%, 3.5%, and 12.4%, respectively, on the same day.

This means that RAI is trading 1.7% above its 20-day moving average, 2.8% above its 50-day moving average, and 8.5% above its 200-day moving average.

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Related ETF and peers

The Guggenheim S&P Equal Weight Consumer Staples ETF (RHS) invests 2.7% of its holdings in Reynolds American. This ETF tracks an equal-weighted index of large-cap US consumer staples stocks drawn from the S&P 500. The YTD price movement of RHS was 7.0% on June 20, 2016.

The market caps of Reynolds’ competitors are as follows:

  • Philip Morris International (PM) — $157.4 billion
  • Altria Group (MO) — $130.0 billion
  • Vector Group (VGR) — $2.8 billion

Reynolds American prevails in the Supreme Court

Reynolds American rose by more than 1.6% on June 20, 2016, after the US Supreme Court handed down a 4-3 decision in favor of the company.

As reported by Reuters, “The EU countries accused R.J. Reynolds in 2002 of directing a decade-long scheme from the United States that involved the smuggling of illegal narcotics into Europe by Colombian and Russian crime groups, the laundering of proceeds from the sale of those drugs, and the use of the proceeds by importers to buy R.J. Reynolds cigarettes.”

In rejecting this complaint filed by the European Union, the Supreme Court’s decision overturned a lower court ruling that Reynolds believed would have opened the floodgates to further racketeering lawsuits against American companies that conducted business abroad.

Reynolds American in fiscal 1Q16

Reynolds American (RAI) reported fiscal 1Q16 net sales of $2.9 billion, a rise of 41.8% from net sales of $2.1 million in fiscal 1Q15. Sales in the RJR Tobacco, Santa Fe, and American Snuff segments rose by 49.9%, 27.5%, and 7.5%, respectively, in fiscal 1Q16 from fiscal 1Q15. The company reported a gain on its divestiture of $4.9 billion in fiscal 1Q16.

Its net income and earnings per share rose to $3.6 billion and $2.49, respectively, in fiscal 1Q16 from $389.0 million and $0.36, respectively, in fiscal 1Q15. It reported adjusted earnings per share of $0.50 in fiscal 1Q16, a rise of 16.3% from fiscal 1Q15.

Reynolds American’s cash and cash equivalents rose by 73.0% in fiscal 1Q16 from fiscal 4Q15. Its debt-to-equity ratio fell to 1.6x in fiscal 1Q16 compared to 1.9x in fiscal 4Q15. It completed the sale of the Natural American Spirit business outside the US during the quarter.

Reynolds American (RAI) has reaffirmed its projection for adjusted earnings per share in the range of $2.25–$2.35 for fiscal 2016.

In the final article in this series, we’ll discuss General Motors.


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