Why British American Tobacco Stock Was Heating Up Today

Shares of British American Tobacco (BTI 6.77%), the owner of cigarette brands Camel and Newport, were moving higher today after the company delivered solid end-of-year results and an encouraging outlook for 2024.

As a result, the stock was up 7.4% as of 12:50 p.m. ET.

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British American redeems itself

Shares of British American Tobacco had plunged back in December when the company took a write-down of roughly $31 billion in its U.S. tobacco brands to account for a faster-than-expected decline in sales and its focus on growth categories. However, that move seemed to help clear the deck for today’s gains.

Revenue for the full year was down 1.3%, but up 3.1% on an organic basis, to 27.3 billion pounds. Like its peers, the company continued to see cigarette demand fall, with sticks sold down 5.3% to 555 billion. Its non-combustibles segment, led by Vuse, saw moderate growth in the period with revenue up 9.9% to 4.5 billion pounds, and it now makes up an impressive 16.5% of total revenue, up 170 basis points from 2022.

Its new categories were also profitable for the year, two years ahead of its target, and organic revenue grew in its combustibles segment, thanks to a 6.1% increase in revenue from price increases and sales mix.

Adjusted operating margin for the year was up 40 basis points to 45.6%, and it had a profit of 8.6 billion pounds, adjusted for the impairment charge.

CEO Tadeu Marroco said, “2023 was another year of resilient financial performance and delivery in line with our guidance, underpinned by our global footprint and multi-category strategy, despite a challenging macro-environment.”

What’s next for British American Tobacco

Management expects similar trends in 2024, calling for a 3% decline in tobacco industry volume, primarily due to weakness in the U.S. and Indonesia. It also sees low-single-digit organic revenue growth and progress to reaching 5 billion pounds in new category revenue by 2025.

On the bottom line, it expects low-single-digit growth in adjusted operating profit and pledged to grow its dividend.

Most investors own this stock for its dividend, which is currently yielding 9.2%. With a sky-high yield, it doesn’t take much to attract investors to the tobacco stock, and its forecast of growth on the top and bottom lines and putting the impairment charge behind it is enough to do that.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends British American Tobacco P.l.c. and recommends the following options: long January 2026 $40 calls on British American Tobacco P.l.c. and short January 2026 $40 puts on British American Tobacco P.l.c. The Motley Fool has a disclosure policy.

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