RBC Capital Markets downgraded Reynolds American Inc. (RAI, Financial) from Outperform to Sector Perform on Feb. 13.
The firm set a new target price of $60, an 11.11% increase from the previous target price of $54 in January .
The new target price represents a 3.8% upside from the average target price of $57.79, which ranges between a low of $52 and a high of $62.50.
With its rating, the global investment bank headquartered in Toronto, Canada said it sees a weakening in the future prospects of the tobacco company.
Considering the tobacco giant is trading at around $60.31 per share, this means RBC does not see room for further upside in the share price of Reynolds American in the next 52 weeks.
Based on RBC Capital’s new target price, Reynolds has climaxed at $60 per share, a level at which the stock has been trading since the last week of January.
Reynolds American's stock has a recommendation rating of 2.5, which means that despite RBC's outlook, there are still analysts who believe the stock can climb higher. The recommendation rating ranges between 1.0 (Strong Buy) and 5.0 (Sell).
Reynolds American reported positive fourth quarter and full-year 2016 results. It generated robust financial results in terms of higher earnings, operating income and revenue, driven by increased tobacco prices, more units of Newport cigarettes sold and lower costs sustained.
Despite these encouraging figures, RBC downgraded the stock. The firm's decision may have weighed in the fact the company’s main cigarette brands, Newport, Camel and Pall Mall, did not show significant improvement in performance in terms of market share.
The firm also weighed in British American Tobacco PLC's (BTI, Financial) recent acquisition of Reynolds American for a total consideration of $49.4 billion.
Reynolds American is currently trading around $60.31 per share, down 26 cents or -0.43% from the previous trading day, with a price-sales ratio of 6.88 and a price-earnings ratio of 16.27. Year to date, the stock has gained 7.28% on the New York Stock Exchange.
Disclosure: I have no position in any stock mentioned in this article.
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