Is British American Tobacco Stock A Buy?

British American Tobacco PLC (NYSE:BTI) is one of the largest tobacco conglomerates in the world after its 2017 acquisition of Reynolds American. The London, England-based company was founded in 1902 and includes some of the most popular brands of cigarettes, cigars, nicotine pouches, and disposable vape cartridges.

Smoking is a global epidemic, but the number of smokers in the United States declined over the 2010s as vaping grew in popularity. The U.S. Centers for Disease Control and Prevention estimates today’s 34.2 million tobacco users are a historic low percentage of the population.

Nevertheless, its products have a following, so is British American Tobacco stock a Buy?

The company fought the declining tobacco trend through repricing its large brand portfolio to make up the losses. This means today’s smokers are paying more for the privilege, as the company’s margins grow.

Despite the drop in smoking, the company controls several disposable e-juice vape brands and has an herbal tobacco heating product on the way.

We roll British American Tobacco up to determine if its stock is a smoking deal or if it will burn up investors’ cash.

British American Tobacco Sells In 180 Countries

British American Tobacco is a global tobacco company that manages a large portfolio of brands. The company formed from a joint venture between Imperial Tobacco Company in the U.K. and American Tobacco Company in the U.S.

The company quickly expanded into China and Burma in the 20th Century. It continued its global expansion into 180 countries around the world.

Its cigarettes include Dunhill, Lucky Strike, Kool, Camel, Newport, Natural American Spirit, and Pall Mall, and its vape brands include Vype, Vuse, and Glo. It also sells Grizzly and Camel Snus. It’s also aggressively pursuing new categories.

Glo is the company’s answer to Philip Morris International’s (NYSE:PM) iQOS tobacco heat stick device. These devices bridge the gap between vaping and smoking using cigarette-like tobacco sticks that are inserted into a handheld convection oven and toasted instead of combusted.

Because vaping and smoking get extreme pushback from global regulators (see “Risks” section below), the company is always in government crosshairs. This has some investors wondering if it’s safe to buy.

Is British American Tobacco Stock A Buy?

British American Tobacco has recently traded with a market capitalization of around $85 billion. That translates to a price-to-earnings ratio of around 10x.

BTI share price fell to a 52-week low of $27.32 in 2020 before bouncing back to the tune of over 60%.

Unfortunately for existing shareholders, it soon fell again. It still hasn’t reached those previous share price highs. But that’s not just due to the fallout from global shutdowns that likely hurt socializing via vaping and smoking tobacco; the company is still reeling from the vape crisis.

BTI has a dividend yield over 7.0 percent and maintained consistent quarterly payments in spite of regulatory and economic challenges. However, it cut the dividend in 2017, and it’s not a small fraction of what it was then. In 2021, the dividend is estimated at $2.688.

In the first half of 2020, the company generated about $16.76 billion in revenue, which gave it $7.33 billion in adjusted profits. The company holds $60.41 billion in debt, and this could act as an anchor on BTI stock price in the coming years.

Still, the company also has a biotech subsidiary called Kentucky BioProcessing working on a COVID-19 vaccine. In fact, it was quite active in assisting the British and American governments with obtaining N95 masks, COVID-19 testing equipment, and more.

But there’s some risk investing in tobacco as in using it.

British American Tobacco Faces Regulatory Obstacles

British American Tobacco is a risky business. Besides its debt load, it operates in a vice market that’s filled with regulations. Litigation throughout the 2000s and 2010s banned smoking in many public places, and vaping quickly got grouped in with the rest.

Consumer advocates (many of whom are paid by tobacco companies through a U.S. government perpetuity settlement) do everything in their power to stop people from smoking or vaping.

The vaping crisis picked up steam in the back half of the 2010s. First artificial butter flavoring used in cream-flavored vape juices was found to cause popcorn lung, a rare lung disease. Meanwhile vitamin E acetate used in some vape juices created an even bigger stir in 2019.

And the U.S. Food and Drug Administration is hesitant to allow heated tobacco sticks for sale within its jurisdiction. These devices are bridging a gap that critics don’t want bridged.

On top of all this market pressure, BTI found itself under criminal investigation by the U.S. Justice Department over doing business in sanctioned countries. This really hurt its share price in the summer of 2020, when it was already taking hits from the vaping controversies and shutdown of tobacco establishments.

Can British American Tobacco Competitors Win?

Despite its size and the market risk, BTI faces stiff competition. Rivals include Altria, Philip Morris International, Japan Tobacco, and Imperial Brands. Each of these companies is pivoting to find the best path forward from the pandemic.

However, the Justice Department probe and other issues could create a hurdle for British American Tobacco that its competitors don’t have. It may find itself in a position of needing to shed assets to cover its bottom line.

Is British American Tobacco Stock A Buy?

British American Tobacco is a global tobacco company and one of the largest in the world. It creates, markets, and sells cigarettes, cigars, vapes, and other tobacco products. This puts it in a risky business made even riskier by criminal complaints it violates sanctions by doing business in prohibited countries.

Still, the company pays a healthy dividend, and its muted stock prices from the vape crisis and worldwide closures of tobacco shops could present a discounted opportunity for brave investors.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.