Consumer Sector Ideas

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Reynolds American - >>> These 3 Companies Could Be Bought in 2017



There's buyout buzz around Reynolds American, GNC, and Michael Kors



Leo Sun

Jan 8, 2017




http://www.fool.com/investing/2017/01/08/these-3-companies-could-be-bought-in-2017.aspx?source=yahoo-2-news&utm_campaign=article&utm_medium=feed&utm_source=yahoo-2-news



The stock market's upside potential might seem limited as the major indexes hover near historic highs, but a few stocks could still rise this year on big takeovers. Let's examine three companies that might be acquired soon -

Reynolds American

Reynolds American, the second-largest domestic tobacco maker after Altria, rallied over 20% last year as low fuel prices apparently boosted cigarette sales as people had more money to spend and its acquisition of Lorillard boosted its top-line growth. Reynolds was well-insulated from the strong dollar because it generates most of its revenue domestically, and many investors bought the stock as a dependable dividend play in a low-interest rate environment.

With interest rates set to rise, Reynolds might seem vulnerable as bonds become more attractive income plays. However, Reynolds' trailing price-to-earnings ratio of 15 is much lower than Altria's P/E of 25 and the industry average of 21. Its Newport menthol brand, Vuse e-cigarettes, and "additive-free" Natural American Spirit brand are also the dominant players in their respective markets.

Those qualities make Reynolds an attractive takeover target for bigger tobacco makers. British American Tobacco (NYSEMKT:BTI), which already owns 42% of Reynolds, offered to acquire the rest of the company for $56.50 per share last October. Reynolds rejected the initial offer, fueling speculation that higher bids could follow. That buyout interest, along with Reynolds' ability to keep cutting costs and raising prices to offset weaker shipments, should help it outperform its industry peers this year.

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