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Reynolds American Remains A 'Top Pick' At RBC Capital

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RBC Capital Markets issued a company report on Reynolds American, Inc. (NYSE: RAI) reiterating the tobacco company as a Top Pick and raised Reynolds' price target from $83 to $90.

Analysts Nik Modi and Russell Miller wrote, "RAI started 2015 on a great footing, posting impressive results across all business segments.
Pricing once again remained strong at 5.9% and volume declines continue to moderate...And while our synergy estimates only bake in opportunities on the cost side, we believe there exists the opportunity for revenue synergies as well, especially from a more rational pricing environment over the long run and Newport potentially receiving better spacing at retail as part of RAI."

The synergy estimates RBC is referring to stems from the acquisition of Lorillard Inc. (NYSE: LO), which was announced in July 2014 and has been under review by the FTC for nine months. While initial synergy estimates were valued at $800 million, after extensive reviews, given the overlap between these two companies, there is a possibility for cost cuts to be even higher. RBC believes that the deal is highly cash accretive and expects Reynolds American to return cash to shareholders when the company de-levers.

Finally, RBC believes that Reynolds American will benefit from consumers switching to more expensive brands of tobacco.

Shares of Reynolds American closed Friday at $74.70.

Latest Ratings for RAI

DateFirmActionFromTo
May 2017Piper SandlerInitiates Coverage OnNeutral
Feb 2017Wells FargoDowngradesOutperformMarket Perform
Feb 2017JefferiesDowngradesBuyHold

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Posted-In: Nik Modi RBC Capital Markets Russell MillerAnalyst Color Price Target Analyst Ratings

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