Reynolds American Inc. (RAI - Free Report) is scheduled to report third-quarter 2016 results on Oct 19, before the opening bell. Last quarter, the cigarette company missed the earnings estimates by 4.9%.
In the trailing four quarters, the company missed the Zacks Consensus Estimate in two quarters and posted in-line results in the other two quarters with an average negative earnings surprise of 2.23%.
Let’s see how things are shaping up prior to this announcement.
Factors to Consider
Headwinds like the shift in consumer’s preference away from tobacco products amid increasing cigarette prices, as well as the rise in anti-tobacco campaigns globally, are likely to weigh on Reynolds’ third-quarter volumes.
However, product innovations should help Reynolds maintain its market share in the tobacco industry. Moreover, the company is increasing its focus on the e-cigarette category that is gaining popularity, especially among young people. This is expected to contribute more toward top-line growth in the yet-to-be-reported quarter.
Our proven model does not conclusively show that Reynolds is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to surpass earnings estimates. However, that is not the case here due to the following factors:
Zacks ESP: Earnings ESP for Reynolds is negative 3.08% as the Most Accurate estimate stands at 63 cents and the Zacks Consensus Estimate is pegged higher at 65 cents.
Zacks Rank: Reynolds’ Zacks Rank #4 (Sell).
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some consumer staple stocks that investors may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Coty Inc. (COTY - Free Report) , with an Earnings ESP of +2.94%. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Sanderson Farms Inc. (SAFM - Free Report) also sports a Zacks Rank #1 and has an Earnings ESP of +8.37%.
Tyson Foods Inc. (TSN - Free Report) carries a Zacks Rank #2 and has an Earnings ESP of +9.48%.
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