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On Tuesday, Deutsche Bank (ETR:DBKGn) analyst Damian McNeela increased the price target for British American Tobacco (LON:BATS:LN) (NYSE: NYSE:BTI) shares to £38.00, up from £35.00, while reaffirming a Buy rating on the stock. The $104 billion market cap company, currently trading near its 52-week high of $47.98, has seen an impressive 34.44% return year-to-date. The revision follows British American Tobacco’s first-half pre-close update, which was released on June 3, indicating that the company’s revenue for the first half of 2025 is projected to surpass expectations.
The company’s positive outlook is primarily driven by its performance in the United States, where it is anticipated to see a return to revenue and profit growth in the first half and throughout the fiscal year 2025. With an industry-leading gross profit margin of 82.33% and a substantial 6.17% dividend yield, BTI demonstrates strong financial fundamentals. This optimistic forecast is supported by a robust showing from its Combustibles segment and the strong performance of Velo Plus.
Outside of the U.S. market, Velo is experiencing robust growth and has become the fastest-growing New Category segment. The Africa, Middle East, and Eastern Europe (AME) region has continued to show strong results. However, challenges such as excise and regulatory issues have impacted the Asia-Pacific and Middle East Africa (APMEA) region, particularly in Bangladesh and Australia.
Despite these regional challenges, British American Tobacco expects to achieve low single-digit (LSD) revenue growth in its New Categories for the first half of 2025. This is partly due to the illicit vape market in the U.S. Nevertheless, the company forecasts that revenue growth will accelerate to mid-single-digit (MSD) by the end of the fiscal year 2025. According to InvestingPro analysis, BTI appears slightly undervalued at current levels, with analysts maintaining positive forecasts for the company’s profitability this year. This acceleration is expected to be fueled by the continued expansion of Velo globally and the introduction of glo Hilo in the heated tobacco category.
In other recent news, British American Tobacco announced a slight increase in its full-year 2025 revenue guidance to approximately 1-2%, up from the previous 1%, following its first-half 2025 pre-close trading statement. The company also maintained its adjusted EBIT growth outlook of around 1.5-2.5%. In a significant financial move, British American Tobacco sold a 2.5% stake in Indian conglomerate ITC (NSE:ITC) for approximately $1.42 billion, with plans to use the proceeds to expand its share buyback program by an additional 200 million pounds. The sale was completed through an accelerated book-build process involving 313 million shares.
BofA Securities reiterated a Buy rating on British American Tobacco, with a price target of £39.00, following the company’s recent trading statement. The statement highlighted improvements in U.S. combustibles and strong growth in VELO, the company’s modern oral product. However, the vapour segment underperformed, impacting the overall revenue growth of its New Categories segment. Despite this, management remains optimistic about achieving mid-single-digit revenue growth for New Categories sales by the end of the year.
Additionally, UBS analysts noted that new U.S. tariffs might not significantly disrupt the tobacco industry, despite potential price increases for products like vapes and nicotine pouches. British American Tobacco’s US vapor offering, Vuse, could see a manageable 5-6% price increase due to tariffs. The company’s focus on domestic production is expected to shield it from major tariff impacts, potentially benefiting the sector’s defensiveness in the current economic climate.
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