Tobacco stocks have lit up recently amid increasing
speculation over potential mergers among the industry's
The group has edged up to No. 169 from No. 190 six weeks ago
among IBD's 197 industry groups, as a Citigroup report Monday
suggestedReynolds American (
) could enter a joint venture with or be a takeover target
forBritish American Tobacco (
The British company already owns a 42% stake in Reynolds,
whose cigarette brands include Camel and Pall Mall. Other
products include snuff and electronic cigarettes.
Last week, the Financial Times reported that Reynolds hired an
investment bank to explore a possible buyout ofLorillard (
). Both companies have declined to comment, but Reynolds surged
11% and Lorillard 13% in the two days following the report.
Reynolds' fourth-quarter sales dipped 2% vs. a year ago, as
revenue has been mostly flat to lower the past 13 quarters. Its
RJR Tobacco unit's Q4 cigarette shipments fell 8.6% from the
prior year, as cigarette industry volume slid 6.2%.
The company seeks to offset slowing sales of traditional
tobacco products with its VUSE Digital Vapor Cigarette, which
Reynolds says is performing well. It's available in Colorado and
is now expanding into Utah.
Profit growth slowed to 1% in Q4. But it has maintained small,
steady annual EPS gains the past four years, which analysts
expect to continue at 6% this year and 8% the next. That helps it
earn a three-year Earnings Stability Factor of 1 on a scale of
zero (most stable) to 99 (most volatile).
The cigarette maker has rolled out dividends every quarter
since its 2004 IPO. Its most recent payout of 67 cents per share
represents a 6% increase and brings its annualized yield to
$2.68, or 5%. That's more than double the S&P 500's
The stock sits 3% above a 52.67 cup-base buy point, which it
cleared March 3.