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British American Tobacco p.l.c. (LON:BATS): Is It A Good Long Term Opportunity?

Simply Wall St

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In March 2019, British American Tobacco p.l.c. (LON:BATS) released its most recent earnings announcement, which signalled that the business endured a immense headwind with earnings deteriorating by -84%. Below, I've laid out key growth figures on how market analysts perceive British American Tobacco's earnings growth outlook over the next few years and whether the future looks brighter. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.

Check out our latest analysis for British American Tobacco

Analysts' outlook for next year seems positive, with earnings expanding by a robust 13%. This growth seems to continue into the following year with rates reaching double digit 23% compared to today’s earnings, and finally hitting UK£7.9b by 2022.

LSE:BATS Past and Future Earnings, July 15th 2019

While it is informative knowing the rate of growth year by year relative to today’s value, it may be more valuable to determine the rate at which the business is growing every year, on average. The pro of this method is that it ignores near term flucuations and accounts for the overarching direction of British American Tobacco's earnings trajectory over time, which may be more relevant for long term investors. To compute this rate, I've appended a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 8.9%. This means that, we can anticipate British American Tobacco will grow its earnings by 8.9% every year for the next couple of years.

Next Steps:

For British American Tobacco, I've put together three fundamental aspects you should further examine:

  1. 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.
  2. Valuation: What is BATS 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 BATS is currently mispriced by the market.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of BATS? 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 editorial-team@simplywallst.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.