Shares of tobacco company Reynolds American (RAI) are up on Thursday morning, despite a rating downgrade to "market perform" from "outperform" at Wells Fargo. The downgrade reflects the pending $49 billion acquisition by British American Tobacco. (BTI)

The firm is expecting limited further upside prior to the transaction. Wells Fargo sees the deal closing "without difficulty" given the strategic value and the "sweetened terms."

"We believe RAI remains one of the most innovative consumer product companies and has been successful over the years in: repositioning brands, creating excitement, driving trial for new products and categories, and incorporating technology into its products as a way to increase the value proposition for consumers," Wells Fargo said.