Reynolds American Inc. (NYSE:RAI) is set to report second-quarter 2016 results on Jul 26, before the opening bell. Last quarter, the cigarette company posted in-line results.
In the trailing four quarters, the company outperformed the Zacks Consensus Estimate by an average positive earnings surprise of 1.13%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
Product innovations should help Reynolds counter the persistent volume decline. Moreover, the company is increasing its focus on the e-cigarette category that is gaining popularity, especially among youngsters. Notably, its e-cigarette brand, Vuse, has boosted the top line in the past. With its nationwide distribution completed in 2015, the company expects the brand to contribute more toward top-line growth in the to-be-reported quarter.
During first-quarter 2016, Reynolds launched two more formats online – VUSE Connect and VUSE FOB. Also, the company continues to work on the development of the Port and Pro formats. Further, Reynolds’ subsidiary, Niconovum USA, remains focused on its nicotine replacement therapy – Zonnic Gum – that helps smokers quit. We believe that the company will further benefit from these initiatives in the second quarter and witness substantial top-line growth.
However, headwinds like the shift in consumers away from tobacco products amid increasing cigarette prices, as well as the rise in worldwide anti-tobacco campaigns, are likely to weigh on Reynolds’ second-quarter volumes.
Earnings Whispers
Our proven model does not conclusively show that Reynolds is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to surpass earnings estimates. However, that is not the case here due to the following factors:
Zacks ESP: Earnings ESP for Reynolds is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 61 cents.
Zacks Rank: Reynolds’ Zacks Rank #3 (Hold) increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some stocks that investors may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Calavo Growers Inc. (NASDAQ:CVGW) has an Earnings ESP of +4.84% and a Zacks Rank #2 (Buy).
Nu Skin Enterprises, Inc. (NYSE:NUS) has an Earnings ESP of +2.60% and a Zacks Rank #2.
Post Holdings Inc. (NYSE:POST) has an Earnings ESP of +12.77% and a Zacks Rank #1 (Strong Buy).
CALAVO GROWERS (CVGW): Free Stock Analysis Report
NU SKIN ENTERP (NUS): Free Stock Analysis Report
REYNOLDS AMER (RAI): Free Stock Analysis Report
POST HOLDINGS (POST): Free Stock Analysis Report
Original post
Zacks Investment Research