Tobacco Giants Are A Hold, But Not A Buy

Source from:  City Bizlist 11/01/2011

Reynolds American (RAI) is an American cigarettes company. Unlike competitor Philip Morris International (PM), RAI has no foreign exposure, so it is at the mercy of the US government and the shrinking tobacco market in the US, and unable to use foreign diversification to bolster earnings. Rival Lorillard (LO) is in the same boat. The number of cigarette smokers is shrinking, and even amongst those countries where smoking is popular, there is a high amount of market saturation, meaning the cigarette industry has only one place to go - down. The only question is whether you can profit from it along the way. To get a good idea which of these cigarette companies is the safest place to put your money, we are going to look at each company in turn. Reynolds American RAI is trading at $39.13 a share, which is near the maximum it has reached in the last five years ($39.78). The numbers may seem encouraging until you look deeper: RAI is also trading at 17.16 times its earnings, which is also near its 5-year peak. Analysts predict EPS will rise around 6%, which is lower than the forecast for the industry, which is 9.7% and less than its growth over the previous five years (7.2%). Enditem