Reynolds American (RAI) Stock Falls on Natural American Spirit Sale

NEW YORK (TheStreet) -- Reynolds American (RAI) stock is down by 0.87% to $43.10 in pre-market trading on Tuesday, after the company agreed to sell the international businesses of the Natural American Spirit brand to Japan Tobacco Group (JAPAF) for $5 billion.

The sale includes the international rights to the brand and associated trademarks, along with international companies responsible for distributing and marketing Natural American Spirit abroad.

"Natural American Spirit has achieved excellent international growth over the past several years," CEO Susan Cameron said in a statement. "When backed by the strength of the JT Group's international distribution, sales force and manufacturing capabilities, we believe that growth trajectory will not only continue, but accelerate."

Reynolds American's subsidiary, Santa Fe Natural Tobacco, will retain the rights to the Natural American Spirit brand in the U.S., U.S. duty-free locations, and U.S. territories and military outlets.

The transaction is subject to regulatory approval and is expected to close by early 2016.

Separately, 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 revenue growth, solid stock price performance, compelling growth in net income, expanding profit margins and good cash flow from operations. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 14.2%. Since the same quarter one year prior, revenues rose by 11.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 267.39% and other important driving factors, this stock has surged by 44.75% over the past year, outperforming the rise in the S&P 500 Index during the same period. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • 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 291.9% when compared to the same quarter one year prior, rising from $492.00 million to $1,928.00 million.
  • The gross profit margin for REYNOLDS AMERICAN INC is rather high; currently it is at 55.93%. Regardless of RAI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, RAI's net profit margin of 80.23% significantly outperformed against the industry.
  • Net operating cash flow has slightly increased to -$632.00 million or 3.80% when compared to the same quarter last year. Despite an increase in cash flow, REYNOLDS AMERICAN INC's cash flow growth rate is still lower than the industry average growth rate of 41.52%.
  • You can view the full analysis from the report here: RAI