Critical Analysis: Japan Tobacco (JAPAY) and Reynolds American (RAI)

Japan Tobacco (OTCMKTS: JAPAY) and Reynolds American (NYSE:RAI) are both large-cap consumer staples companies, but which is the better stock? We will compare the two companies based on the strength of their risk, institutional ownership, profitability, earnings, valuation, analyst recommendations and dividends.

Institutional and Insider Ownership

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0.1% of Japan Tobacco shares are held by institutional investors. Comparatively, 46.3% of Reynolds American shares are held by institutional investors. 0.1% of Reynolds American shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.

Dividends

Reynolds American pays an annual dividend of $2.04 per share and has a dividend yield of 3.1%. Japan Tobacco does not pay a dividend. Reynolds American has increased its dividend for 8 consecutive years.

Analyst Recommendations

This is a breakdown of recent ratings and recommmendations for Japan Tobacco and Reynolds American, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Japan Tobacco 0 0 0 0 N/A
Reynolds American 0 3 0 0 2.00

Reynolds American has a consensus target price of $64.00, indicating a potential downside of 2.14%. Given Reynolds American’s higher probable upside, analysts plainly believe Reynolds American is more favorable than Japan Tobacco.

Profitability

This table compares Japan Tobacco and Reynolds American’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Japan Tobacco 18.36% 15.03% 8.34%
Reynolds American 27.70% 16.91% 7.20%

Volatility and Risk

Japan Tobacco has a beta of 1.02, suggesting that its share price is 2% more volatile than the S&P 500. Comparatively, Reynolds American has a beta of 0.4, suggesting that its share price is 60% less volatile than the S&P 500.

Valuation & Earnings

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

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Japan Tobacco $19.09 billion 2.99 $3.50 billion $0.98 14.55
Reynolds American N/A N/A N/A N/A N/A

Japan Tobacco has higher revenue and earnings than Reynolds American.

Summary

Reynolds American beats Japan Tobacco on 7 of the 10 factors compared between the two stocks.

Japan Tobacco Company Profile

Japan Tobacco Inc., together with its subsidiaries, manufactures and sells tobacco products, primarily cigarettes in Japan and internationally. It also distributes imported tobacco products. The company offers its tobacco products primarily under the Winston, Camel, Mevius, LD, Benson & Hedges (B&H), Glamour, Sobranie, Silk Cut, Natural American Spirit, Seven Stars, Pianissimo, Peace, HOPE, and other brand names. In addition, it engages in the research and development, manufacture, and sale of prescription drugs in the fields of metabolic diseases, viral infection, and autoimmune/inflammatory diseases. The company's pharmaceutical products include Riona tablets for the treatment of hyperphosphatemia, Remitch capsules for pruritus, and KAYEXALATE dry syrup for hyperkalemia; FUTHAN for injection, a protease inhibitor; ANTEBATE, a topical corticosteroid; CEDARTOLEN sublingual immunotherapy drugs; MITICURE House Dust Mite sublingual tablets; and Truvada, Stribild, Genvoya, and Descovy combination tablets for HIV. Further, it manufactures and sells staple food products, including frozen noodles, frozen rice, packed-cooked rice, and frozen baked bread; bakery products; and seasonings, including yeast extracts and oyster sauce. Japan Tobacco Inc. was founded in 1898 and is headquartered in Tokyo, Japan.

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.

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