Morgan Stanley Downgrades British American Tobacco Stock, Anticipates Continued Weakness in US Cigarette Volumes - What Investors Need to Know
In a recent development, Morgan Stanley downgraded British American Tobacco (NYSE:) stock from Overweight to Underweight, with a revised price target of £25.00, down from £28.50. The decision is based on concerns about the expected ongoing decline in US cigarette volumes, driven by consumer preferences for downtrading and the rising popularity of next-generation products (NGPs) like disposable e-cigarettes.
The downgrade reflects Morgan Stanley's belief that British American Tobacco may not see an immediate boost from smokers switching from traditional cigarettes, as illicit disposable e-cigarettes continue to go unregulated. This could lead to a low-single-digit percentage drop in the company's US business in the fiscal years 2025 and 2026.
Furthermore, Morgan Stanley does not expect British American Tobacco to achieve organic growth within its previously stated +3-5% range until 2027, delaying the company's own projection of reaching this target by 2026. This suggests that the company's growth prospects may not be as robust as previously thought.
On the other hand, Morgan Stanley highlighted Imperial Brands (OTC:) (IMB) as having better earnings visibility compared to British American Tobacco. This is attributed to Imperial Brands' less premium cigarette portfolio and lower exposure to US NGPs, potentially shielding it from the market pressures affecting its competitor.
The revised price target and stock rating reflect Morgan Stanley's assessment of British American Tobacco's market position, especially in the United States, and its ability to adapt to the changing dynamics of the tobacco and nicotine product industry.
In conclusion, investors should take note of Morgan Stanley's downgrade of British American Tobacco stock and consider the implications for their portfolios. The shift in rating and price target indicates a cautious outlook on the company's performance in the coming years, highlighting the importance of staying informed and making strategic investment decisions based on the latest market analysis.