Reynolds American (NYSE: RAI) and Philip Morris International (NYSE:PM) are both large-cap consumer staples companies, but which is the superior business? We will compare the two companies based on the strength of their valuation, dividends, institutional ownership, analyst recommendations, risk, profitabiliy and earnings.

Dividends

Reynolds American pays an annual dividend of $2.04 per share and has a dividend yield of 3.1%. Philip Morris International pays an annual dividend of $4.16 per share and has a dividend yield of 3.4%. Reynolds American pays out 88.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Philip Morris International pays out 92.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Reynolds American has raised its dividend for 7 consecutive years and Philip Morris International has raised its dividend for 9 consecutive years. Philip Morris International is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Institutional & Insider Ownership

46.3% of Reynolds American shares are owned by institutional investors. Comparatively, 73.5% of Philip Morris International shares are owned by institutional investors. 0.1% of Reynolds American shares are owned by company insiders. Comparatively, 0.2% of Philip Morris International shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Earnings & Valuation

This table compares Reynolds American and Philip Morris International’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Reynolds American $12.54 billion 7.57 $6.07 billion $2.31 28.79
Philip Morris International $26.67 billion 7.10 $11.50 billion $4.52 26.96

Philip Morris International has higher revenue and earnings than Reynolds American. Philip Morris International is trading at a lower price-to-earnings ratio than Reynolds American, indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a breakdown of current ratings and price targets for Reynolds American and Philip Morris International, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Reynolds American 0 8 1 0 2.11
Philip Morris International 0 4 7 0 2.64

Reynolds American currently has a consensus target price of $58.25, indicating a potential downside of 12.41%. Philip Morris International has a consensus target price of $119.80, indicating a potential downside of 1.67%. Given Philip Morris International’s stronger consensus rating and higher possible upside, analysts plainly believe Philip Morris International is more favorable than Reynolds American.

Volatility & Risk

Reynolds American has a beta of 0.44, suggesting that its share price is 56% less volatile than the S&P 500. Comparatively, Philip Morris International has a beta of 0.94, suggesting that its share price is 6% less volatile than the S&P 500.

Profitability

This table compares Reynolds American and Philip Morris International’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Reynolds American 26.23% 15.64% 6.54%
Philip Morris International 9.40% -65.44% 19.37%

Summary

Philip Morris International beats Reynolds American on 12 of the 17 factors compared between the two stocks.

About Reynolds American

Reynolds American Inc. (RAI) is a holding company. The Company’s segments include RJR Tobacco, which consists of the primary operations of its subsidiary, R. J. Reynolds Tobacco Company; Santa Fe, which consists of the primary operations of its subsidiary, Santa Fe Natural Tobacco Company, Inc., and American Snuff, which consists of the primary operations of its subsidiary, American Snuff Company, LLC. The RJR Tobacco segment manages contract manufacturing of cigarettes and tobacco products through arrangements with British American Tobacco p.l.c. affiliates, and manages the export of tobacco products to certain United States territories, the United States duty-free shops and the United States overseas military bases. The American Snuff segment offers adult tobacco consumers a range of segregated smokeless tobacco products, primarily moist snuff. The Santa Fe segment manufactures and markets super-premium cigarettes and other tobacco products under the NATURAL AMERICAN SPIRIT brand.

About Philip Morris International

Philip Morris International Inc. is a holding company. The Company is engaged in the manufacture and sale of cigarettes, other tobacco products and other nicotine-containing products in markets outside of the United States. Its segments include European Union (EU); Eastern Europe, Middle East & Africa (EEMA); Asia, and Latin America & Canada. The Company’s portfolio of international and local brands is led by Marlboro. Its mid-price brands are L&M, Lark, Merit, Muratti and Philip Morris. Its other international brands include Bond Street, Chesterfield, Next and Red & White. The Company also owns various local cigarette brands, such as Dji Sam Soe, Sampoerna and U Mild in Indonesia; Champion, Fortune and Jackpot in the Philippines; Apollo-Soyuz and Optima in Russia; Morven Gold in Pakistan; Boston in Colombia; Belmont, Canadian Classics and Number 7 in Canada; f6 in Germany; Delicados in Mexico; Assos in Greece, and Petra in the Czech Republic and Slovakia.

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