Reynolds American, the No. 2 U.S. tobacco company, has been at
the center of speculation regarding consolidation in the
At aGoldman Sachs (
) conference in New York on Tuesday,Reynolds American (
) CEO Susan Cameron dodged a question about what might be in
store. One rumor making the rounds has it that U.K.-based British
American Tobacco (BAT) would like to increase its 42% stake in
Reynolds after a 10-year standstill agreement expires in July.
The agreement was to prevent a hostile takeover of Reynolds.
Another rumor is that Camel-maker Reynolds is trying to
The rumors moved the stocks Monday following a Times of London
article on speculation regarding the BAT takeover attempt.
Reynolds broke out of a flat base on the report, although
volume was only 22% above average. Lorillard had already broken
out and is holding a few percentage points above its buy
The big effort today in the tobacco industry is the
development of e-cigarettes, which are smokeless. The FDA
recently said that it would regulate them, a move that the
industry's big players welcomed.
Tobacco companies are slow growers, and Reynolds is no
exception. It has four straight years of earning growth, but
analysts expect only a 5% EPS increase in 2014 and an 8% increase
The five-year annualized growth rate is 7%, although the
Earnings Stability Factor is 2 on a 0 to 99 scale where low
numbers correspond to steady earnings growth.
Earnings in the most recent quarter were flat vs. a year ago.
Analysts expect a 4% increase in the next report.
Reynolds pays a dividend equal to $2.68 cents a share, which
comes out to a 4.6% annual yield. It's growing at a three- to
five-year rate of 10%.