BAT(BTI) The Motley Fool·2024-10-12 08:24Core Viewpoint - British American Tobacco is facing challenges due to illegal competition in the U.S. market, which is impacting its business performance and growth prospects [1][3][4]. Group 1: Company Overview - British American Tobacco is a leading global tobacco company with a diversified portfolio, including traditional cigarette brands like Camel and Newport, as well as next-generation products such as Vuse vapes and Velo nicotine pouches [1]. - The company currently offers a high dividend yield of 8.5%, attracting dividend-seeking investors [1]. Group 2: Market Performance - Tobacco stocks, including British American Tobacco, experienced a surge earlier in the year as investors anticipated interest rate cuts, but the stock has recently pulled back [2]. - Morgan Stanley has downgraded British American Tobacco from overweight (buy) to underweight (sell), citing risks related to regulatory enforcement against flavored disposable e-cigarettes in the U.S. [3]. Group 3: Sales Forecast and Financial Metrics - Morgan Stanley forecasts a low-single-digit decline in U.S. sales for British American Tobacco in fiscal years 2025 and 2026 due to competition from illegal vaping products [4]. - The stock has a price target of $33, reflecting concerns about the company's future performance [4]. - The company has a price-to-earnings ratio of 6.3, which is low due to declining demand for its core products [6]. Group 4: Revenue Trends - Organic revenue for British American Tobacco decreased by 0.8% year over year, while revenue from new categories increased by only 7.4% [6]. - Vape volumes have declined by 9.0%, indicating significant challenges in that market [6]. Group 5: Future Outlook - Despite the challenges in the U.S. market, the dividend remains secure, but growth expectations should be tempered [7]. - There is potential for regulatory changes in the U.S. that could benefit the company, and it is experiencing strong growth from Velo nicotine pouches [6].