Jefferies names British American Tobacco top pick in tobacco sector.

British American Tobacco rallied after Jefferies named it their top sector pick. Jefferies initiated coverage with a Buy rating, citing improving profitability in the company's combustibles business.

British American Tobacco (BAT) saw a significant rally in its stock price following Jefferies' initiation of coverage with a Buy rating and naming it the top pick in the global tobacco sector. Jefferies highlighted BAT's improving profitability in its traditional combustibles business, which supports its transition toward smoke-free products. The investment firm also noted BAT's strong cash returns and attractive valuation, with the stock currently trading at a 35% discount compared to the wider tobacco sector [1].

The research note from Jefferies underscored BAT's "strong foothold" in smoke-free products, citing the company's success with its Velo brand in the U.S. and Europe. BAT's expanding portfolio beyond traditional cigarettes aligns with shifting consumer preferences toward alternative nicotine products. The company's recent sale of a 2.5% stake in Indian conglomerate ITC for approximately $1.42 billion further bolstered its financial position, with plans to expand its share buyback program [2].

In addition to Jefferies' positive outlook, Deutsche Bank and BofA Securities have also maintained a Buy rating for BAT, with price targets of £38.00 and £39.00, respectively. Deutsche Bank's positive revenue projection for the first half of 2025 and BofA Securities' slight increase in full-year 2025 revenue guidance reflect the company's strong performance and growth prospects [3].

However, BAT's vapor performance fell short of expectations, impacting revenue growth in its New Categories segment. Despite this, management remains optimistic about achieving mid-single-digit revenue growth for the full year. BAT's focus on cash flow generation and its ability to sustain dividends, despite declining combustible cigarette sales, have drawn attention from income-seeking investors [4].

In conclusion, BAT's rally following Jefferies' positive coverage reflects the investment firm's confidence in the company's improving profitability and attractive valuation. As BAT continues to pivot toward smoke-free products and maintain strong cash returns, investors should closely monitor its performance and growth prospects in the coming quarters.

References:
[1] https://www.investing.com/news/analyst-ratings/british-american-tobacco-stock-initiated-with-buy-rating-at-jefferies-93CH-4127487
[2] https://www.investing.com/news/stock-market-news/jefferies-starts-coverage-on-global-tobacco-sector-bat-top-pick-4127564
[3] https://www.investments.halifax.co.uk/research-centre/news-centre/article/?id=20249778&type=bsm
[4] https://www.ainvest.com/news/british-american-tobacco-bti-high-dividend-yield-masks-structural-challenges-2507/