Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model. NEW YORK ( TheStreet) -- Reynolds American (NYSE: RAI) has been reiterated by TheStreet Ratings as a buy with a ratings score of A-. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, notable return on equity, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company shows weak operating cash flow.
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- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Tobacco industry. The net income increased by 88.1% when compared to the same quarter one year prior, rising from $270.00 million to $508.00 million.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. 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.
- The gross profit margin for REYNOLDS AMERICAN INC is rather high; currently it is at 63.10%. It has increased significantly from the same period last year. Along with this, the net profit margin of 26.97% is above that of the industry average.
- The debt-to-equity ratio is somewhat low, currently at 0.99, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.72 is somewhat weak and could be cause for future problems.
- REYNOLDS AMERICAN INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, REYNOLDS AMERICAN INC reported lower earnings of $2.24 versus $2.41 in the prior year. This year, the market expects an improvement in earnings ($3.22 versus $2.24).
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