Reynolds American, Inc. (RAI): Zacks Rank Buy

Reynolds American, Inc. (RAI ) has been trading like a high flyer for the last few months, hitting a number of new all-time highs as investors shift into more conservative segments of the market. With a high industry rank and estimates on the rise, this Zacks #1 Rank stock is burning up the charts.

Reynolds American

Reynolds American Inc.: The Camel-maker

Reynolds American, Inc., through its subsidiaries, manufactures and sells cigarettes and other tobacco products in the United States. The company was founded in 1875 and has a market cap of $24 billion.

With investors nervous about economic growth, dividend stocks have fallen into favor with investors. That dynamic and respectable Q3 results from late October have RAI trading at an all-time high.

Third-Quarter Results

Revenue for the period was down about 2% from last year to $2.2 billion. When excluding one-time charges related to legal expenses, earnings came in at 70 cents, up from 65 cents last year but 4% short of the Zacks Consensus Estimate calling for 73 cents.

Although cigarettes sales fell about 6.8% from last year, smokeless sales helped fill the gap, with sales up 7%.

Financial Profile

The company has used its earnings momentum to strengthen its financial profile, with total debt falling to $3.67 billion from $4.1 billion last year. Cash and short-term investments stand at $2.01 billion.

Estimates

We saw some decent movement in estimates off the good quarter, with the current year adding 14 cents to $2.78 while the next-year estimate added 15 cents to $2.95, a solid 6% growth projection.

Valuation

But in spite of the recent gains, RAI still looks reasonably priced, trading with a forward P/E of 14X, a slight discount to the industry average of 14.7X.

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