On Monday, Morgan Stanley (NYSE:MS) adjusted its stance on British American Tobacco (NYSE:BTI) shares, revising the price target downward to $34 from the previous $35.50, while still retaining an Overweight rating on the stock. The revision follows an evaluation of British American Tobacco's first half of the year 2024 pre-close trading update.
The firm's analyst cited a couple of reasons for the downward adjustment, including weaker-than-anticipated cigarette volumes in the United States, which were partially attributed to inventory phasing.
Additionally, there was a noted deceleration in the growth of new categories, specifically in the U.S. vapor market and the Asia-Pacific, Middle East, and Africa (APMEA) tobacco heating products (THP) sector.
For the full fiscal year 2024, Morgan Stanley now anticipates organic growth of 1.2%, which aligns with the consensus of 1.7% and British American Tobacco's own guidance of low single-digit (LSD%) growth. This forecast takes into account an expected rebound in U.S. cigarette sales and an uptick in the company's new category growth during the second half of the year.
The firm also mentioned that their net profit estimates for the fiscal years 2024, 2025, and 2026 have been reduced by 3%, partly due to the impact of foreign exchange mark-to-market adjustments since their last update. However, the operating assumptions beyond fiscal year 2024 remain largely unchanged.
Concluding the note, Morgan Stanley recalibrated the price target for British American Tobacco's stock to 2,700 GBp from the former target of 2,800 GBp, a move that is largely in line with the modifications to the earnings estimates. The corresponding American Depositary Receipt (ADR) price target has been set to $34, a decrease from the previous target of $35.50.
In other recent news, British American Tobacco (BAT (LON:BATS)) has been the subject of several significant developments. Jefferies maintained a Buy rating on the company, anticipating a stronger performance in the latter half of the year, particularly due to the Reduced-Risk Products segment. In contrast, the World Health Organization accused tobacco companies, including BAT, of targeting youth with vaping products.
Meanwhile, anti-smoking groups have initiated legal action against the U.S. government, urging the enforcement of a ban on menthol cigarettes, a product contributing significantly to BAT's revenue. European regulators are also considering stricter regulations on zero-tobacco heat sticks, a new product line introduced by BAT and other firms.
Lastly, Citi reaffirmed its Buy rating on BAT, following the company's announcement to sell a portion of its shares in ITC and launch a share buyback program. These recent developments provide a snapshot of the various factors influencing the company's current business landscape.
InvestingPro Insights
Amidst Morgan Stanley's revised outlook on British American Tobacco (NYSE:BTI), investors seeking a deeper dive into the company's financial health might consider the latest data from InvestingPro. With a robust gross profit margin of 82.07% for the last twelve months as of Q4 2023, BTI demonstrates a strong ability to control costs relative to its revenues. Additionally, the company's impressive dividend yield, standing at 9.46% as of mid-2024, showcases its commitment to returning value to shareholders—a commitment further evidenced by its track record of raising dividends for 27 consecutive years.
InvestingPro Tips highlight the company's high shareholder yield and its valuation, which suggests a strong free cash flow yield. These factors may provide some reassurance to investors concerned about the stock's performance. For those looking for further insights, InvestingPro offers additional tips on BTI, which can be accessed through InvestingPro's detailed analysis. Moreover, readers can benefit from an exclusive offer by using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking even more valuable investment tips—there are 9 additional InvestingPro Tips available for BTI, offering a comprehensive view on the stock's prospects.
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