Investing.com -- Goldman Sachs upgraded tobacco maker British American Tobacco to "buy" from "neutral" on Monday, citing a clearer path to sustained organic revenue growth toward the midpoint of its 3%-5% guidance range.
The brokerage raised its 12-month price target to 5,600 pence from 5,200 pence, implying 22% upside plus a dividend yield of close to 6%. BAT trades at 12 times expected 2027 earnings; Goldman said the improved growth outlook justifies about 13.5 times.
Goldman expects organic sales growth to pick up after four years of low-single-digit growth that fell below management's target, helped by resilient combustible sales and mid-teens growth in New Categories. It forecasts organic sales growth of about 4% in 2027 and 2028.
The United States, which accounts for more than 60% of BAT's operating profit, is its most strategically important market.
Goldman said Velo Max, a nicotine pouch launched in September, reached 44,000 outlets in October and is expected to reach a further 55,000 by January 2027.
Vuse vapour volumes rose 20% through August in states with observable enforcement, nearly double the industry growth rate.
Goldman also expects Asia-Pacific, Middle East and Africa to return to growth from 2027 after two years of decline, as headwinds in Bangladesh and Australia annualise.
Goldman sees medium-term operating profit growth of 5%-6%, toward the upper end of management's guidance, as New Categories scale.
With debt reduction and faster share buybacks, it forecasts average earnings per share growth of 9% over five years. It expects average annual free cash flow of about £9.5 billion through 2030, ahead of BAT's guidance of about £8 billion.
Goldman cut its BAT earnings per share forecasts for 2027 and 2028 by 0.4% and 1.3%, reflecting updated industry assumptions and latest exchange-rate movements. Its 2027 operating profit forecast is about 1% above Visible Alpha consensus, and about 2% above for 2028.
Goldman listed adverse regulation and FDA enforcement and authorisation delays among key risks. It expects BAT's full-year 2026 trading update in December to show stronger second-half momentum.
Goldman kept its "buy" rating on rival Imperial Brands, raising its price target to 3,600 pence from 3,500 pence, implying 22% upside.
Original Article
Goldman upgrades BAT on clearer path to sustained revenue growth
