British American Tobacco Ups Guidance: Stock Still Appears To Be A Bargain

Despite headwinds in combustibles and vaping, British American Tobacco (BTI) is projected to achieve modest revenue growth in 2025, driven by gains in oral products and new categories; the company's strong free cash flow and ITC stake monetization support shareholder returns. With an attractive valuation of 7.2x EBITDA, BTI presents significant upside potential, especially when compared to peers like Altria and Philip Morris, leading to a recommendation to add to positions on pullbacks with a bull case scenario offering up to 40% upside.

Analysis

British American Tobacco (BTI) is navigating headwinds in its combustibles and vaping segments, but is forecast to achieve modest revenue growth in 2025, driven by gains in oral products and its New Categories division. The company's financial profile is supported by strong free cash flow generation and an ongoing monetization of its ITC stake, which are expected to bolster the balance sheet and underpin shareholder returns, including a secure dividend. Currently, BTI's valuation appears attractive at 7.2 times EBITDA, presenting significant upside potential, especially when compared to peers like Altria (MO) and Philip Morris (PM). A bull case scenario suggests a potential upside of up to 40% in the coming years, reinforcing the strongly positive sentiment (sentiment score: 0.8) associated with the stock. This outlook follows a previous buy recommendation made after BTI's impairment charge in December 2023, indicating continued confidence despite sector challenges.

Key Decisions for Investors

• Investors may consider adding to British American Tobacco positions, particularly on any price pullbacks, given its current valuation of 7.2x EBITDA and a potential 40% upside scenario.
• Monitor the company's ability to successfully transition and grow its oral products and New Categories to offset declines in traditional segments, as this is crucial for achieving its 2025 revenue growth forecasts.
• Evaluate the ongoing impact of the ITC stake monetization on BTI's balance sheet strength and its capacity for sustained shareholder returns through dividends and other means.