Reynolds American (NYSE: RAI) and British American Tobacco PLC (NYSE:BTI) are both large-cap consumer staples companies, but which is the superior investment? We will contrast the two businesses based on the strength of their analyst recommendations, institutional ownership, profitabiliy, valuation, dividends, earnings and risk.

Analyst Recommendations

This is a summary of recent ratings and price targets for Reynolds American and British American Tobacco PLC, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Reynolds American 0 8 1 0 2.11
British American Tobacco PLC 0 0 3 0 3.00

Reynolds American currently has a consensus price target of $58.25, indicating a potential downside of 9.80%. British American Tobacco PLC has a consensus price target of $69.00, indicating a potential upside of 2.43%. Given British American Tobacco PLC’s stronger consensus rating and higher probable upside, analysts plainly believe British American Tobacco PLC is more favorable than Reynolds American.

Institutional & Insider Ownership

46.4% of Reynolds American shares are owned by institutional investors. 0.1% of Reynolds American shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Dividends

Reynolds American pays an annual dividend of $2.04 per share and has a dividend yield of 3.2%. British American Tobacco PLC does not pay a dividend. 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. British American Tobacco PLC has raised its dividend for 7 consecutive years.

Valuation and Earnings

This table compares Reynolds American and British American Tobacco PLC’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Reynolds American $12.54 billion 7.35 $6.07 billion $2.31 27.96
British American Tobacco PLC $18.70 billion 6.70 $7.35 billion N/A N/A

British American Tobacco PLC has higher revenue and earnings than Reynolds American.

Profitability

This table compares Reynolds American and British American Tobacco PLC’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%
British American Tobacco PLC 25.96% 55.18% 11.01%

Summary

British American Tobacco PLC beats Reynolds American on 9 of the 15 factors compared between the two stocks.

Reynolds American Company Profile

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.

British American Tobacco PLC Company Profile

British American Tobacco p.l.c. is a tobacco and next generation products company. The Company’s tobacco product range includes cigarettes, fine cut (roll-your-own and make-your-own tobacco) and Swedish-style snus. Its segments include Asia-Pacific, Americas, Western Europe, and Eastern Europe, Middle East and Africa (EEMEA). The Asia-Pacific segment includes its operations in various countries, including Australia, Pakistan, Malaysia, Vietnam, Japan, South Korea, Indonesia, New Zealand and Bangladesh. The Americas segment includes its operations in various countries, including Brazil, Mexico, Canada, Colombia, Argentina, Chile and Venezuela. The Western Europe segment includes its operations in various countries, including Germany, Denmark, Switzerland, Belgium, France, the United Kingdom, Romania, Spain, Italy, Poland and Croatia/Balkans. The EEMEA segment includes its operations in various countries, including Russia, Ukraine, South Africa, Turkey, Egypt, Nigeria and Algeria.

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