UPDATE: UBS Starts Reynolds American (RAI) at Neutral
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(Updated - August 25, 2016 8:22 AM EDT)
UBS initiated coverage on Reynolds American (NYSE: RAI) with a Neutral rating and a price target of $52. Analyst Stephen Powers sees the company as a shelter from the global volatility.
"We initiate coverage of RAI during a period of market uncertainty, global growth malaise, and a low rate environment that make defensive assets such as RAI appear appealing. Moreover, RAI's headline attractiveness has risen in the wake of its Lorillard acquisition (June 2015), given the addition of a category outperformer (the Newport brand), upside optionality from cigarette alternatives (smokeless and e-cigarettes), and the realization of $800M in annualized synergies 6 months ahead of schedule (at the midpoint of 2016). While we (1) believe near/medium-term fundamentals will hold, and (2) regard the near-term regulatory environment as fairly benign, we are somewhat concerned that consensus expectations (and RAI's implied valuation) already reflect this optimism. Moreover, longer term, we see the risk of US menthol regulation as having the potential to grow (as other countries have already moved in that direction). As such, we initiate RAI with a Neutral rating and $52 PT, acknowledging additional downside should today's interest rate environment surprise to the upside," said Power.s
Shares of Reynolds American closed at $50.72 yesterday.
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