J.P Morgan: Reynolds American Focused On Long Term EPS Growth

This evening Reynolds American RAI presented to the J.P. Morgan sales team, following on from the analysts' morning hosted earlier in the day. The presentation was upbeat, with the company focused on continuing to deliver medium and long term growth in EPS in the mid to high single digit range. J.P Morgan believes that this growth rate can be achieved on “as is” basis, i.e. it excludes the potential for returns to be enhanced through the deployment of the company's considerable cashflow, for example through returning cash to shareholders by way of share repurchase,augmenting the 75% of adjusted net income which is already returned through the ordinary dividend. There have been important changes in behaviour in the US tobacco market over the last three years in particular, and in our view the clear intention of all the industry majors is to focus on returns to shareholders through growth in the overall industry profit pool. Reynolds American offers a compelling play on those industry dynamics, and so within a sector where we continue to see good value across all of the stocks, Reynolds American remains an Overweight recommendation. RAI closed Monday at $64.86