Reynolds American (RAI) versus Vector Group (NYSE:VGR) Critical Survey

Reynolds American (NYSE: RAI) and Vector Group (NYSE:VGR) are both consumer staples companies, but which is the better investment? We will compare the two businesses based on the strength of their earnings, institutional ownership, profitability, analyst recommendations, risk, valuation and dividends.

Valuation and Earnings

This table compares Reynolds American and Vector Group’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Reynolds American N/A N/A N/A $2.31 28.31
Vector Group $1.31 billion 2.09 $293.38 million $0.39 54.15

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

Risk and Volatility

Reynolds American has a beta of 0.41, indicating that its stock price is 59% less volatile than the S&P 500. Comparatively, Vector Group has a beta of 0.46, indicating that its stock price is 54% less volatile than the S&P 500.

Profitability

This table compares Reynolds American and Vector Group’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%
Vector Group 2.86% -36.72% 6.47%

Dividends

Reynolds American pays an annual dividend of $2.04 per share and has a dividend yield of 3.1%. Vector Group pays an annual dividend of $1.60 per share and has a dividend yield of 7.6%. 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. Vector Group pays out 410.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Vector Group has increased its dividend for 7 consecutive years. Vector Group is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Insider & Institutional Ownership

46.3% of Reynolds American shares are held by institutional investors. Comparatively, 47.2% of Vector Group shares are held by institutional investors. 0.1% of Reynolds American shares are held by insiders. Comparatively, 12.9% of Vector Group shares are held by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Analyst Ratings

This is a summary of current ratings and recommmendations for Reynolds American and Vector Group, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Reynolds American 0 8 1 0 2.11
Vector Group 0 0 1 0 3.00

Reynolds American presently has a consensus target price of $58.88, suggesting a potential downside of 9.98%. Vector Group has a consensus target price of $27.00, suggesting a potential upside of 27.84%. Given Vector Group’s stronger consensus rating and higher probable upside, analysts plainly believe Vector Group is more favorable than Reynolds American.

Summary

Vector Group beats Reynolds American on 8 of the 13 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.

Vector Group Company Profile

Vector Group Ltd. is a holding company. The Company is engaged in the manufacture and sale of cigarettes in the United States through its Liggett Group LLC (Liggett) and Vector Tobacco Inc. (Vector Tobacco) subsidiaries, and the real estate business through its New Valley LLC subsidiary, which is seeking to acquire or invest in additional real estate properties or projects. The Company’s segments include Tobacco, E-Cigarettes and Real Estate. The Tobacco segment consists of the manufacture and sale of cigarettes. The E-Cigarettes segment includes the operations of the Company’s e-cigarette business. The Real Estate segment includes the Company’s investments in New Valley LLC. The Company owns and seeks to acquire investment interests in a range of domestic and international real estate projects through debt and equity investments.

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