Story
Imperial Brands Upgraded to Buy by BofA on Overstated Growth Fears
Summary
Bank of America raised its rating on the tobacco giant to 'Buy' from 'Neutral' and increased its price target, arguing that investor concerns about the company's fiscal 2026 earnings outlook are excessive.
Bank of America has upgraded its rating on Imperial Brands PLC (LON:IMB) to "Buy" from "Neutral," asserting that market concerns regarding the tobacco company's future earnings growth are overblown. The bank also raised its price target on the stock, citing an attractive valuation and improving fundamentals.
The Analyst Call
In a note to clients on Tuesday, Bank of America (BofA) lifted its price target for Imperial Brands to 3,200 pence from a previous 2,675 pence. The new target implies a potential upside of approximately 17% from the stock's current trading levels.
Following the upgrade, shares of Imperial Brands rose 0.6% to GBP 2,689 in London trading, outperforming the broader FTSE 100 index, which declined 0.7% during the session.
Australian Concerns 'Misplaced'
BofA analysts argued that investors have become overly concerned about a potential slowdown in Imperial's fiscal 2026 earnings growth. These fears stem from recent excise changes and stricter enforcement in Australia, which have impacted industry volumes.
AdThe bank stated these fears are "misplaced," highlighting that Australia accounts for only about 4% of the company's group EBIT. BofA projects that stronger pricing power and market share gains will more than compensate for any near-term weakness in the region. The firm expects Australia to return to positive earnings contribution from fiscal 2027.
Valuation and Outlook
Beyond the specific issues in Australia, BofA noted several positive factors supporting Imperial's outlook. These include resilient pricing across its core combustible tobacco products and supportive growth from its next-generation product portfolio.
The bank also identified foreign exchange as a potential tailwind beginning in the second half of 2027. According to the note, Imperial Brands trades at an "undemanding valuation" compared to its peers, especially for a company delivering sustainable EBIT growth of 3%-5%, making the stock an attractive entry point for investors.
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