British American Tobacco Shares (BATS): Price Target Raised, Analyst Remains Bearish

British American Tobacco shares (LON:BATS) are currently trading lower, impacted by a mixed analyst sentiment despite a recent price target increase. The BATS share price is down 0.73% today, with the latest price target more than 30% lower than where it trades today.

The marginal decline in shares comes as Morgan Stanley analyst Rashad Kawan increased the firm's price target on British American Tobacco to 3,050p from 3,000p. Despite this upward revision, Morgan Stanley maintains an Underweight rating on the shares, signaling a continued bearish outlook on the tobacco giant. The stock's year-to-date performance shows a decrease of 47.9%, highlighting existing investor concerns.

Kawan's rationale for the maintained Underweight rating centers on persistent difficulties in BAT's U.S. operations. The analyst anticipates continued weak growth in this key market compared to its peers. Furthermore, potential impacts on capital allocation from fiscal year 2026 due to higher leverage are also contributing factors to the cautious outlook.

Adding to the complexity, British American Tobacco recently projected that its 2026 revenue and profit would likely fall at the lower end of its mid-term targets. The company attributed this to intense competition within the U.S. vape market. While demand for nicotine pouches remains robust, the proliferation of unregulated vape products, largely originating from China, has created significant headwinds for BAT. Despite these challenges, the company affirmed that it remains on track to meet its 2025 objectives and is moving forward with a planned £1.3 billion share buyback in the coming year.

In other strategic moves, British American Tobacco recently divested a 9% stake in ITC Hotels for approximately $425 million. This sale reduces BAT's ownership in ITC Hotels from 15.3% to 6.3%. The transaction aligns with the company's broader strategy to reduce debt and divest non-strategic assets, freeing up capital for core business initiatives.

Analyst sentiment towards British American Tobacco remains varied. Deutsche Bank analyst Damian McNeela recently raised the price target for BATS to 3800 from 3500, while maintaining a Buy rating. This adjustment followed BAT's first-half pre-close update, which indicated projected revenue surpassing expectations, particularly driven by improved performance in the U.S. market.

On the other hand, Citi analysts increased BAT's price target to 4,850 from 4,450, reiterating a Buy rating, reflecting confidence in BAT's growth prospects and strategic initiatives. Earlier in September, Jefferies initiated coverage on BAT with a Buy rating and set a price target of GBP48.00, highlighting the company's strong position in smoke-free products and improving profitability in its traditional combustibles business.