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Analyst Blog

Shares of Reynolds American Inc (RAI - Analyst Report) hit a new 52-week high of $46.95 on Apr 26, following solid first quarter 2013 results on Apr 23. Its share price closed at $46.90, recording a healthy return of 10.8% year-to-date. The company’s long-term estimated EPS growth rate is 6.70%. Average volume of shares traded over the last three months came in at approximately 1,824K.

Solid First Quarter Performance

Reynolds American posted strong first quarter earnings, which were up 14.3% from the prior-year quarter on the back of positive pricing, productivity improvements, prudent expense management and a lower share count owing to share buyback program. Earnings also beat the Zacks Consensus Estimate.

The market share of the company’s popular brands including Camel, Pall Mall, Grizzly and Natural American Spirit also increased in the quarter. Though revenues slipped from the prior-year quarter, operating income and margins were up due to strict cost controls.

The company is on track with investment in smokeless and moist snuff products to meet the changing preferences of adult tobacco consumers. Furthermore, the company’s advancement in the e-cigarette category with its brand Vuse is encouraging. We expect the company to gain from these investments going ahead.

For 2013, Reynolds American expects its adjusted earnings in the range of $3.15 to $3.30 per share, up 6% to 11% from the prior-year earnings of $2.97 per share.

Other Stocks to Consider

Reynolds American holds a Zacks Rank #2 (Buy). Another cigarette company Altria Group Inc (MO - Analyst Report) also carries a Zacks Rank #2. Others stocks in the consumer staples sector that are portraying strong upward trend in the bourses are Flower Foods Inc (FLO - Snapshot Report) which carries a Zacks Rank #1 (Strong Buy) and Kellogg Co (K - Analyst Report) with a Zacks Rank #2.

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