) and U.S. Tobacco (UST
) to neutral.
Analyst Martin Feldman says the R.J. Reynolds downgrade is based on his belief that it is the weakest of the big four tobacco companies with exposure to the U.S. cigarette market. Feldman thinks the company will likely have to respond to any price-based activity by competitors. When, or if, R.J. Reynolds responds to Philip Morris' plans to further invest substantial amounts in the U.S. markets in 2002, Feldman thinks R.J. Reynolds will reduce its estimates in 2002. He cut the $6.85 2002 earnings per share estimate to $6.00, and cut the 2003 estimate to $7.40.
Feldman says his U.S. Tobacco downgrade is largely based on his concern over the forthcoming McMullin trial in Jacksonville, Fla. He is the most enthusiastic about Philip Morris and British American Tobacco; he thinks their earnings per share growth prospects over the next two years remain a lot stronger than R.J. Reynolds, U.S. Tobacco and Loews Corp's Carolina Group, a stock that tracks Loew's Lorillard subsidiary.