Reynolds American (NYSE:RAI) manufactures and sells cigarette and other tobacco products in the United States.
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%|
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|
There have been 7,428,972 shares sold, and there have been zero shares purchased by insiders since January 2013.
Reynolds American reported the full-year 2013 financial results on February 11 with the following highlights:
|Net income||$1.7 billion|
(Source: Earnings release)
The 12 insiders sold their shares after these results.
Reynolds American's 2014 EPS guidance is $3.30-$3.45.
|Qtrly Rev Growth (yoy):||-0.02||-0.01||-0.01||0.04|
|PEG (5 yr expected):||2.16||1.89||2.25||1.35|
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|
Lorillard has also seen intensive insider selling during the last 30 days.
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.