The tobacco manufacturer will merge its U.S. assets with British American Tobacco. Analyst Bonnie Herzog says the merger is very positive. Based on her calculations, she believes the new company. to be called Reynolds American Inc., could have 2004 earnings per share power of at least $5.75, excluding $500 million in annualized savings.
Herzog notes the following positive impacts of the news: 1) a financially stronger entity; 2) increased efficiencies and cost savings; 3) increased scale, resulting in an enhanced competitive position; 4) an even more attractive 75% payout ratio. She raised the $43 target to $55. Herzog sees 95 cents 2003 earnings per share, and $4.90 in 2004.