Back to top

Analyst Blog

We maintain our Neutral recommendation on Reynolds American Inc. (RAI - Analyst Report), following the appraisal of its fourth quarter 2012 results.

Why the Reiteration?

Reynolds American delivered its fourth quarter 2012 earnings on Feb 12, 2013. Adjusted earnings of $0.76 climbed 5.6% from the prior-year quarter earnings and were also ahead of the Zacks Consensus Estimate by 9.7%, on the back of improved earnings and strong business in the moist snuff segment. However, the company continued to see lower cigarette shipment volumes and an unfavorable excise tax scenario.

 We are encouraged by the company’s continuous effort to adapt to evolving demands and bring out innovative smokeless non-combustible tobacco products that do not cause as much harm as traditional tobacco. The Natural American Spirit, which is the premium brand of the Santa Fe segment of Reynolds, commands a major share in the U.S. smokeless cigarette market, having grown from 30.3% in 2010 to 32.4% in 2012. Reynolds’ tailor made e-cigarette category, which is used as a simulating substitute of the cigarette, is also gaining popularity in the U.S. market.

Although the company is on track to achieve its cost reduction goal and has undertaken measures like slimming down its workforce to cut down on its expenses, the unfavorable excise tax scenario and restrictions imposed on tobacco companies, following widespread anti-tobacco campaigns, have resulted in a consistent decline in cigarette shipments for several years. Moreover, competitive pricing by market leaders and aggressive promotions are resulting in depressed margins for several quarters.

Other Stocks to Consider

Reynolds carries Zacks Rank #3 (Hold). Other stocks in the Consumer Staples segment like Altria Group Inc. (MO - Analyst Report), Lorillard Company (LO - Analyst Report) and Procter & Gamble Company (PG">PG), each carrying a Zacks Rank #2 (Buy), are also worth considering.

Please login to or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research


Are you a new Zacks Member or a visitor to

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
UTD THERAPE… UTHR 117.83 +28.51%
TRIQUINT SE… TQNT 20.67 +6.52%
RF MICRO DE… RFMD 12.47 +6.04%
VASCO DATA… VDSI 14.77 +4.68%
BANCO DO BR… BDORY 15.53 +3.95%