RBC Capital Markets: Reynolds American is a top performer in the Tobacco Industry

RBC Capital Markets issued a company report on Reynolds American, Inc.

reiterating the tobacco company as a Top Pick. RBC Capital Markets raised Reynolds' price target from $83 to $90. Nik Modi and Russell Miller, analysts at RBC Capital Markets, wrote, "RAI started 2015 on a great footing, posting impressive results across all business segments. Pricing once again remained strong at 5.9% and volume declines continue to moderate...And while our synergy estimates only bake in opportunities on the cost side, we believe there exists the opportunity for revenue synergies as well, especially from a more rational pricing environment over the long run and Newport potentially receiving better spacing at retail as part of RAI." The synergy estimates RBC is referring to stems from the acquisition of Lorillard Inc.

which was announced in July of 2014 and has been under review by the FTC for 9 months. While initial synergy estimates were valued at $800 million, after extensive reviews, given the overlap between these two companies, there is a possibility for cost cuts to be even higher. RBC believes that the deal is highly cash accretive and expects Reynolds American to return cash to shareholders when the company de-levers. Finally RBC believes that Reynolds American will benefit from consumers switching to more expensive brands of tobacco. Shares of Reynolds American last traded at $74.70. Shares of Lorillard last traded at $70.68.