UPDATE: Jefferies Initiates Hold, $42 Target on Reynolds American

Jefferies initiates coverage on Reynolds American (NYSE: RAI) with a Hold rating and a price target of $42 a share, as stock appears to have fully priced in the good outlook.

Jefferies notes, "RAI's equity, in our view, fairly reflects the improving outlook for its cigarette portfolio, strong smokeless brand and outstanding growth of Natural American Spirit. This is partially offset by weak margins and potential pricing pressure. The company offers an attractive dividend yield of 5.6% and is currently conducting an operational review."

RAI closed at $40.38 a share on Wednesday.