BofA Projects 3.4% Tobacco Growth in 2026 After Rerating

BofA Projects Stable Growth for Tobacco Sector

Bank of America forecasts a steady 3.4% top-line growth for the tobacco sector in 2026. This projection follows a significant revaluation in 2025, where the sector's forward price-to-earnings ratio increased from 10.5x to 14.3x. BofA maintains its Buy rating on British American Tobacco, highlighting it as a top pick.

Sector Performance and Regulatory Tailwinds

The tobacco industry's strong performance in 2025 was supported by its defensive qualities and a more favorable regulatory environment in the United States. Key developments included the withdrawal of a proposed menthol ban and FDA approvals for modern oral products, which boosted investor confidence and led to the sector's rerating.

Analyst Ratings and Price Target Adjustments

While maintaining a Buy rating on British American Tobacco (BTI), BofA adjusted its price target due to foreign exchange fluctuations. The bank holds a Neutral rating on Imperial Brands (IMB) and lowered its price target, citing expectations of lower margin expansion.

Outlook Summary

British American Tobacco remains BofA's top pick, favored for strong cash returns and growth from Modern Oral products. The bank expects modest share performance in 2026 after last year's surge, with BTI targeting 4% sales and 5% EBIT growth long-term.

FAQ

Q: What is BofA's growth forecast for the tobacco sector in 2026?
A: BofA projects a 3.4% top-line growth for the sector.

Q: Why is British American Tobacco considered a top pick?
A: BofA cites its strong cash returns and sustainable growth, primarily driven by its Modern Oral products.

Source: Investing.com