Based on British American Tobacco p.l.c.'s (LON:BATS) earnings update in December 2018, analyst consensus outlook appear cautiously subdued, with profits predicted to rise by 14% next year relative to the higher past 5-year average growth rate of 49%. By 2020, we can expect British American Tobacco’s bottom line to reach UK£6.9b, a jump from the current trailing-twelve-month of UK£6.0b. In this article, I've outline a few earnings growth rates to give you a sense of the market sentiment for British American Tobacco in the longer term. Readers that are interested in understanding the company beyond these figures should research its fundamentals here.
What can we expect from British American Tobacco in the longer term?
The 18 analysts covering BATS view its longer term outlook with a positive sentiment. Since forecasting becomes more difficult further into the future, broker analysts generally project out to around three years. I've plotted out each year's earnings expectations and inserted a line of best fit to calculate an annual growth rate from the slope in order to understand the overall trajectory of BATS's earnings growth over these next few years.
From the current net income level of UK£6.0b and the final forecast of UK£7.9b by 2022, the annual rate of growth for BATS’s earnings is 8.9%. This leads to an EPS of £3.58 in the final year of projections relative to the current EPS of £2.64. With a current profit margin of 25%, this movement will result in a margin of 29% by 2022.
Future outlook is only one aspect when you're building an investment case for a stock. For British American Tobacco, I've compiled three essential aspects you should look at:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is British American Tobacco worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether British American Tobacco is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of British American Tobacco? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.