Reynolds American: 12 Different Insiders Have Sold Shares This Month

Mar.17.14 | About: Reynolds American, (RAI)

Summary

12 insiders sold Reynolds American stock within one month.

The stock was not purchased by any insiders in the month of intensive selling.

All 12 of these insiders decreased their holdings by more than 10%.

Reynolds American (NYSE:RAI) manufactures and sells cigarette and other tobacco products in the United States.

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Insider selling during the last 30 days

Here is a table of Reynolds American's insider activity during the last 30 days.

Name Title Trade Date Shares Sold Rule 10b5-1 Current Ownership Decrease In Ownership
Robert Stowe EVP March 12 13,085 Yes 27,980 shares 31.9%
Frederick Smothers SVP March 12 10,353 Yes 15,533 shares 40.0%
J. Brice O'Brien EVP March 12 12,556 Yes 20,277 shares 38.2%
Martin Holton EVP March 12 10,390 Yes 42,899 shares 19.5%
Andrew Gilchrist CCO March 12 10,561 Yes 39,817 shares 21.0%
Jeffery Gentry EVP March 12 12,288 Yes 35,028 shares 26.0%
McDara Folan SVP March 12 9,953 Yes 15,008 shares 39.9%
Daniel Fawley SVP March 12 9,488 Yes 26,302 shares 26.5%
Robert Dunham EVP March 12 9,717 Yes 18,400 shares 34.6%
Daniel Delen CEO March 12 50,319 Yes 181,771 shares 21.7%
Lisa Caldwell EVP March 12 14,095 Yes 39,857 shares 26.1%
Thomas Adams CFO March 12 28,221 Yes 66,671 shares 29.7%
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There have been 191,026 shares sold by insiders during the last 30 days. All these shares were sold pursuant to a Rule 10b5-1 plan.

SEC Rule 10b5-1 is a regulation enacted by the United States Securities and Exchange Commission (SEC) in 2000. The SEC states that Rule 10b5-1 was enacted in order to resolve an unsettled issue over the definition of insider trading, which is prohibited by SEC Rule 10b-5. After Rule 10b5-1 was enacted, the SEC staff publicly took the position that canceling a planned trade made under the safe harbor does not constitute insider trading, even if the person was aware of the inside information when canceling the trade. This staff interpretation raises the possibility that executives can exploit this safe harbor by entering into 10b5-1 trading plans before they have inside information while retaining the option to later cancel those plans based on inside information.

For example, a CEO of a company could call a broker on January 1 and enter into a plan to sell a particular quantity of shares of his company's stock on March 1, find out terrible news about his company on February 1 that will not become public until April 1, and then go forward with the March 1 sale anyway, saving himself from losing money when the bad news becomes public. Under the terms of Rule 10b5-1(b) this is insider trading because the CEO "was aware" of the inside information when he made the trade. But he can assert an affirmative defense under Rule 10b5-1(c), because he planned the trade before he learned the inside information.

In general, it is a safer way for an insider to sell shares pursuant to a Rule 10b5-1 trading plan than without it.

Insider selling by calendar month

Here is a table of Reynolds American's insider activity by calendar month.

Month Insider selling / shares Insider buying / shares
March 2014 191,026 0
February 2014 312,574 0
January 2014 464,872 0
December 2013 255,462 0
November 2013 510,037 0
October 2013 504,905 0
September 2013 399,004 0
August 2013 523,733 0
July 2013 348,268 0
June 2013 804,921 0
May 2013 487,280 0
April 2013 0 0
March 2013 1,682,979 0
February 2013 943,911 0
January 2013 0 0
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There have been 7,428,972 shares sold, and there have been zero shares purchased by insiders since January 2013.

Financials

Reynolds American reported the full-year 2013 financial results on February 11 with the following highlights:

Revenue $8.2 billion
Net income $1.7 billion
Cash $1.5 billion
Debt $5.1 billion
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(Source: Earnings release)

The 12 insiders sold their shares after these results.

Outlook

Reynolds American's 2014 EPS guidance is $3.30-$3.45.

Competition

Reynolds American's competitors include Altria (NYSE:MO), Philip Morris International (NYSE:PM), and Lorillard (NYSE:LO). Here is a table comparing these companies.

Company RAI MO PM LO
Market Cap: 29.18B 72.25B 126.64B 18.78B
Employees: 5,200 9,000 91,100 2,900
Qtrly Rev Growth (yoy): -0.02 -0.01 -0.01 0.04
Revenue: 8.24B 17.66B 31.22B 4.97B
Gross Margin: 0.55 0.59 0.67 0.55
EBITDA: 3.41B 8.57B 14.71B 2.25B
Operating Margin: 0.40 0.47 0.44 0.44
Net Income: 1.72B 4.52B 8.53B 1.18B
EPS: 3.14 2.26 5.26 3.15
P/E: 17.31 16.08 15.19 16.46
PEG (5 yr expected): 2.16 1.89 2.25 1.35
P/S: 3.53 4.05 4.02 3.72
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Reynolds American has the highest P/E ratio among these four companies.

Here is a table of these competitors' insider activities this year.

Company Insider buying / shares Insider selling / shares
MO 0 0
PM 1,000 0
LO 0 266,875
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Lorillard has also seen intensive insider selling during the last 30 days.

Conclusion

There have been 12 different insiders selling Reynolds American, and there have not been any insiders buying Reynolds American during the last 30 days. All 12 of these insiders decreased their holdings by more than 10%. Reynolds American has an insider ownership of 0.10%.

There are two analyst buy ratings, seven neutral ratings, and two sell ratings with an average price target of $53.59. Before going short Reynolds American, I would like to get a bearish confirmation from the Point and Figure chart. The three main reasons for the proposed short entry are negative revenue growth, bearish analyst price targets, and the intensive insider-selling activity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.