NEW YORK (TheStreet) -- Reynolds American (RAI - Get Report) shares were upgraded to "equal weight" from "underweight" by analysts at Morgan Stanley (MS - Get Report), who raised its price target to $56 from $55 on Tuesday.
Analyst David Adelman believes that the chances that a merger with Lorillard (LO) will happen are "more likely than not", though he noted that the deal could still face opposition from the FTC.
Reynolds American shares are up 0.5% to $56.42 in early market trading today.
TheStreet Ratings team rates REYNOLDS AMERICAN INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate REYNOLDS AMERICAN INC (RAI) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income, notable return on equity, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- REYNOLDS AMERICAN INC has improved earnings per share by 9.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, REYNOLDS AMERICAN INC increased its bottom line by earning $3.14 versus $2.24 in the prior year. This year, the market expects an improvement in earnings ($3.38 versus $3.14).
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Tobacco industry average. The net income increased by 6.7% when compared to the same quarter one year prior, going from $461.00 million to $492.00 million.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Tobacco industry and the overall market, REYNOLDS AMERICAN INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- Net operating cash flow has increased to -$657.00 million or 42.81% when compared to the same quarter last year. In addition, REYNOLDS AMERICAN INC has also vastly surpassed the industry average cash flow growth rate of -120.29%.
- The gross profit margin for REYNOLDS AMERICAN INC is rather high; currently it is at 56.71%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 22.75% trails the industry average.
- You can view the full analysis from the report here: RAI Ratings Report