British American Tobacco Shares Upgraded to ‘Buy’

British American Tobacco shares (LON: BATS) have started 2025 strongly, with a gain of 6.74% through the first month of trading. Holders will feel somewhat boosted by the fact the stock received an upgrade from global financial services firm UBS.

The bank has lifted its rating on BATS from ‘neutral' to ‘buy', with a significant increase in the price target from 3,000p to 3,900p. UBS now considers BATS as its ‘top pick' among similar companies. Following this announcement, BAT's shares saw a 4% increase, trading at 3,126p at 1355 GMT.

One of the key factors driving this upgrade is the expected sales growth of BAT's Velo nicotine pouches. UBS anticipates that sales in the New Categories segment will accelerate to 16% by the fiscal year 2026.

Additionally, UBS pointed out the flexibility in BAT’s 25.5% stake in ITC Limited which could be utilised for larger stock buybacks or debt reduction. This strategic flexibility is seen as advantageous for the company’s financial management.

The bank also highlighted BAT's low estimated price-to-earnings ratio, pegged at 6.6x for fiscal year 2026, which is deemed attractive. Furthermore, UBS has revised its earnings per share (EPS) estimates upwards by 3% for FY25 and by 5% for FY26, largely due to the strength of the US dollar. This revision places the estimates above the consensus, including forecasts for Canada.