Where Will British American Tobacco Be in 1 Year?

British American Tobacco (BAT) (LSE: BATS) stock has faced headwinds in recent months, with investors expressing concerns about the company's performance and outlook. Despite these challenges, BAT has demonstrated resilience and a commitment to driving sustainable growth. In this article, we will discuss the key metrics, strategic initiatives, and financial outlook for BAT, and explore why a one-year outlook for BAT stock could present a solid investment opportunity.

BAT Stock Key Metrics


The charts above illustrate how BAT stock's valuation has evolved over the past year. BAT stock is now trading in line with its main competitors, such as Philip Morris International (PM) and Japan Tobacco (JAPAF). This compression in valuation is understandable given the current market environment and the challenges faced by the tobacco industry. However, BAT has not deviated from its strategy and continues to make significant progress in its New Categories segment.

BAT's New Categories segment, which includes products like Vuse electronic cigarettes and VELO nicotine pouches, has shown strong growth and improved profitability. In the first half of 2024, BAT's New Categories organic revenue grew by 21.0% (at constant rates), driven by strong volume-led growth in Vuse and Velo. This contributed to a 16.5% share of Group revenue, up 170 basis points (bps) compared to 2022. Additionally, BAT's New Categories achieved profitability in 2023, two years ahead of the original target, contributing a £398 million increase to Group profit at constant rates of exchange.

CFO Soraya Benchikh emphasized the company's progress during the H1'24 earnings call (edited):


BAT has raised its FY24 revenue guidance midpoint to low-single digit growth on an organic, constant currency basis. However, the market reacted negatively to the company's guidance for adjusted profit from operations in H1'24, which is expected to be down by low-single digits on an organic, constant currency basis. This is mainly driven by continued investment in U.S. commercial actions and related wholesaler inventory movements, as well as ongoing macro-economic pressures in the U.S. market and the lack of effective enforcement against the growing illicit vapour segment.

It's important to note that BAT has a clear path to sustainable growth, driven by its focus on Quality Growth and its commitment to building a Smokeless World. CEO Tadeu Marroco further clarified (edited):


BAT will host an investor conference in the near future, where it will provide more details on its expanded Total Addressable Market (TAM) and its path to sustainable growth. Last year, the company communicated a long-term adjusted EBITDA margin of 31.4%, which can serve as a guidepost for evaluating management's guidance this year.

Is BAT Stock a Buy, Sell, or Hold Now?


For short-term investors or traders, BAT stock is highly volatile and a favorite among short-sellers. While the company has outlined a path to long-term sustainable growth, it could still face near-term and medium-term volatility. However, the stock is currently trading near its most pessimistic price targets, and its premium valuation has been largely digested.

If you have a long-term perspective of at least one year, BAT stock could be a solid addition to your portfolio. We believe that the company will achieve its sustainable growth targets, leading to a higher stock price than what we see today. Therefore, we reiterate our Buy rating on BAT stock.