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Reynolds American (RAI) Sinks to 52-Week Low: Here's Why

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Investment ideas are not merely about which stocks to buy; they also involve suggesting which stocks to sell and why. Normally, people are already aware about when it’s time to cut losses, but sometimes investors just don't want to take a loss and move on.

Exiting an underperforming stock at the right time helps maximize your portfolio’s return. Hence, as an investor, it would be a sensible decision to reject from your portfolio a stock that has been witnessing falling share price and estimates, before it hurts your return.

Reynolds American Inc. which manufactures and sells cigarettes as well as other tobacco products in the U.S. through its subsidiaries is one such stock whose share price has been nose-diving. The company’s shares have plunged nearly 12% in the past three months.

On Oct 19, shares of Reynolds American declined 2.1% and touched a 52-week low of $43.38 after the company reported dismal quarterly numbers for third-quarter 2016. However, the stock recovered sharply to end the day at $46.29.

The company’s third-quarter 2016 adjusted earnings of 61 cents per share missed the Zacks Consensus Estimate of 64 cents by 4.7%. Notably, the company’s earnings have missed the estimate in three out of the four trailing quarters. Further, it reported net sales of $3.21 billion, missing the Zacks Consensus Estimate for the second consecutive quarter.

REYNOLDS AMER Price and EPS Surprise
 

REYNOLDS AMER Price and EPS Surprise | REYNOLDS AMER Quote

Moreover, the Zacks Rank #4 (Sell) company tightened its full-year guidance. Based on the third-quarter performance, the company now anticipates earnings in the range of $2.27–$2.33 per share as against $2.26–$2.35 estimated earlier. The Zacks Consensus Estimate for 2016 is currently pegged at $2.32, which could witness a revision in the coming days.

Reynolds is investing heavily to promote the e-cigarette brand, VUSE, which is straining margins further. Moreover, the cigarette maker is likely to face margin pressure due to pricing power of other major tobacco players and rising cost of sales.

Other Stocks to Consider

Better-ranked stocks worth considering in the same sector include 22nd Century Group, Inc. (XXII - Free Report) , Imperial Brands PLC (IMBBY - Free Report) and Philip Morris International, Inc. (PM - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Shares of 22nd Century Group have gained more than 42% in the past three months.

Imperial Brands has a long-term earnings growth rate of 8.7%.

Philip Morris International has a long-term earnings growth rate of 9%.

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