Shares of British American Tobacco (NYSE:BTI) declined in trading after the tobacco giant announced a write-off of $31.5 billion (or £25 billion) from its U.S. cigarette brands like Camel, Newport, and Pall Mall.
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The company acknowledged that its combustibles business in the U.S. was facing macro pressures. BAT added that this accounting adjustment mainly relates to “some of our acquired U.S. combustibles brands, as we now assess their carrying value and useful economic lives over an estimated period of 30 years.” Accordingly, BTI will start amortizing the remaining value of its U.S. combustibles brands from January 2024.
BTI added that in the U.S., economic challenges included consumers moving to cheaper brands due to inflation, and the rise of “illicit modern disposables” has put its U.S. cigarette business under pressure.
As a result, the company aims to become a mainly smokeless business and is looking at generating 50% of its revenues from non-combustibles by 2035. Furthermore, British American Tobacco seeks to improve its revenues by 3% to 5%. It also expects “mid-single digit” organic growth (at constant rates) for its adjusted profit from operations by 2026.
RBC Capital analyst James Edwardes Jones commented on the $31.5 billion charge, “Goodness, that’s a big number,” and added that it highlighted the “perils of the industry,” a “grim” outlook for BTI, and signaled a pessimistic outlook for cigarettes.
Is BTI a Good Stock?
Analysts remain cautiously optimistic about BTI stock with a Moderate Buy consensus rating based on one Buy and two Holds. Since the firm’s shares have slid by more than 20% year-to-date, the average BTI price target of $35.50 implies an upside potential of 22% at current levels.
