The only company with a lower PEG+Y ratio than Reynolds is Altria, where their yield of 5.18% and 7% growth isn’t enough to offset the forward P/E of over 14 the stock sells for. Calculating the PEG+Y, we find Altria scores a 0.86. Unfortunately both Reynolds and Philip Morris International Inc. (NYSE:PM) score only slightly better, with PEG+Y ratios of 0.95 and 0.96 respectively. While Reynolds American, Inc. (NYSE:RAI) pays a nice yield, and Philip Morris International is expected to grow the fastest, their P/E ratios already reflect these positive factors. The company the market seems to be missing the big picture on is Lorillard Inc. (NYSE:LO).
If analysts are correct, Lorillard is expected to grow earnings by 9% in the next few years. This represents the second fastest growth among the group, and puts the company nearly 2% ahead of Reynolds by this measure. In addition, Lorillard pays the highest current yield at 5.76% and has the lowest forward P/E of the group. When you add the fact that Lorillard also finished second to Reynolds in operating margin and debt-to-equity ratio, you can see the company is competitive across the board. In the end, Reynolds isn’t a terrible company, but their rising debt load, high payout ratio, and relatively worse valuation make Lorillard Inc. (NYSE:LO) a better option. Investors looking to smoke the market should put LO on their Watchlist today.
The article 2 Positives, But 3 Big Negatives From This Company originally appeared on Fool.com and is written by Chad Henage
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