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Citigroup Has Rated Reynolds American a ‘Buy’

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RAI’s price movements

Reynolds American (RAI) has a market cap of $71.6 billion. It fell 0.90% to close at $47.45 per share on September 13, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -6.1%, -5.4%, and 5.5%, respectively, on the same day.

RAI is trading 4.6% below its 20-day moving average, 5.9% below its 50-day moving average, and 2.5% below its 200-day moving average.

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Related ETF and peers

The Guggenheim S&P Equal Weight Consumer Staples ETF (RHS) invests 2.6% of its holdings in Reynolds American. The 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 4.7% on September 13, 2016.

The market caps of Reynolds American’s competitors are as follows:

  • Philip Morris International (PM): $159.4 billion
  • Altria Group (MO): $129.7 billion
  • Vector Group (VGR): $2.9 billion

Reynolds American’s rating

Citigroup has initiated coverage of Reynolds American as a “buy.”

On September 12, 2016, Goldman Sachs downgraded Reynolds American to “neutral” from “buy.” It also reduced the stock price target to $53 from $56 per share.

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Reynolds American’s performance in 2Q16

Reynolds American (RAI) reported 2Q16 net sales of $3.2 billion, a 33.3% rise over $2.4 billion in 2Q15. Sales for the RJR Tobacco, Santa Fe, and American Snuff segments rose 41.0%, 13.3%, and 6.4%, respectively, between 2Q15 and 2Q16. The company’s cost of products sold as a percentage of net sales and operating income fell 11.4% and 67.6%, respectively.

RAI’s net income and EPS (earnings per share) fell to $796.0 million and $0.56, respectively, in 2Q16, compared to $1.9 billion and $1.69, respectively, in 2Q15. It reported adjusted EPS of $0.58 in 2Q16, a rise of 13.7% over 2Q15.

Reynolds American’s cash and cash equivalents fell 25.3% between 4Q15 and 2Q16. Its debt-to-equity ratio fell to 1.4x in 2Q16 compared to 1.9x in 4Q15. The company has projected its adjusted EPS at $2.26–$2.34 for 2016. It has also approved a new $2.0 billion share repurchase program to be completed by the end of 2018.

 Next, we’ll look at Polaris Industries (PII).

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