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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.

(click to enlarge)

Insider selling during the last 30 days

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

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Robert StoweEVPMarch 1213,085Yes27,980 shares31.9%
Frederick SmothersSVPMarch 1210,353Yes15,533 shares40.0%
J. Brice O'BrienEVPMarch 1212,556Yes20,277 shares38.2%
Martin HoltonEVPMarch 1210,390Yes42,899 shares19.5%
Andrew GilchristCCOMarch 1210,561Yes39,817 shares21.0%
Jeffery GentryEVPMarch 1212,288Yes35,028 shares26.0%
McDara FolanSVPMarch 129,953Yes15,008 shares39.9%
Daniel FawleySVPMarch 129,488Yes26,302 shares26.5%
Robert DunhamEVPMarch 129,717Yes18,400 shares34.6%
Daniel DelenCEOMarch 1250,319Yes181,771 shares21.7%
Lisa CaldwellEVPMarch 1214,095Yes39,857 shares26.1%
Thomas AdamsCFOMarch 1228,221Yes66,671 shares29.7%

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.

MonthInsider selling / sharesInsider buying / shares
March 2014191,0260
February 2014312,5740
January 2014464,8720
December 2013255,4620
November 2013510,0370
October 2013504,9050
September 2013399,0040
August 2013523,7330
July 2013348,2680
June 2013804,9210
May 2013487,2800
April 201300
March 20131,682,9790
February 2013943,9110
January 201300

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.

CompanyRAIMOPMLO
Market Cap:29.18B72.25B126.64B18.78B
Employees:5,2009,00091,1002,900
Qtrly Rev Growth (yoy):-0.02-0.01-0.010.04
Revenue:8.24B17.66B31.22B4.97B
Gross Margin:0.550.590.670.55
EBITDA:3.41B8.57B14.71B2.25B
Operating Margin:0.400.470.440.44
Net Income:1.72B4.52B8.53B1.18B
EPS:3.142.265.263.15
P/E:17.3116.0815.1916.46
PEG (5 yr expected):2.161.892.251.35
P/S:3.534.054.023.72

Reynolds American has the highest P/E ratio among these four companies.

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

CompanyInsider buying / sharesInsider selling / shares
MO00
PM1,0000
LO0266,875

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.

Source: Reynolds American: 12 Different Insiders Have Sold Shares This Month