Reynolds American's Disappointing Quarter Belies A Strong Growth Story

Reynolds American, Inc. RAI third quarter  earnings per share and revenue fell short of what analysts were expecting.

Despite the miss, Vivien Azer of Cowen And Company reiterated an Outperform rating and $57 price target on the stock. According to the analyst, the company is still on track to deliver double-digit earnings per share growth in 2016 and 2017 and the company remains a top brand among consumers.

Azer said Reynolds' portfolio benefited in the third quarter from a positive mix shift as total volume of premium products rose 130 basis points from a year ago to 73.2 percent. In addition, the super premium-priced NAS (Natural American Spirit) brand recorded another quarter of double-digit volume growth. In fact, sales of Newport and NAS gained a combined 70 basis points of market share in the third quarter.

Azer also ntoed that as a whole, Reynolds continues to gain market share year-over-year each quarter compared to Lorillard LLC LO who demonstrated notable share gains in its first quarter followed by decelerating share momentum afterwards.

"We're encouraged to see these share gains are not concentrated to any specific segment as the brand gained share in both core and non-core and across geographies," the analyst wrote.

Bottom line, the company's share gains were not concentrated to any specific segment and the brand gained market share in core and non-core products and across various geographies.