JPMorgan Reopens BAT Coverage With a Bullish Bet on Pouches and Vapes

JPMorgan has restarted coverage of British American Tobacco with an "Overweight" rating and a price target of 5,300 pence on the London-listed stock, throwing its weight behind the company's smoke-free pivot at a moment when that strategy is under close scrutiny.

The endorsement rests on two pillars: market-share gains in US nicotine pouches and in the American e-cigarette market, which the bank argues can help the group return to stronger top-line growth. JPMorgan sees BAT reclaiming currency-neutral revenue growth of 3% to 5% — a pace it also projects for 2027 — and counts the company among its preferred defensive names in the European tobacco sector.

Investors gave the call a modest nod. The shares were up 1.7% at €54.38 on the day, though the price target is quoted in pence, reflecting the dual-listing arithmetic rather than a direct comparison with the euro quote.

The Growth Engine Under the Microscope

Whether the bullish case holds depends largely on the "New Categories" unit. BAT itself is guiding for mid-teens percentage revenue growth in that division for 2026, and the first-half numbers suggest the momentum is real: new-category sales rose 18% year on year, with the US alone up 58.1%. That surge dovetails with the share gains JPMorgan highlights in pouches and vaping.

Size matters as much as speed, though. Smoke-free products accounted for 19.8% of group revenue in the first half of 2026 — a meaningful slice, but one that leaves the traditional cigarette business with substantial sway over overall results. A higher revenue share would make the growth story more convincing if it comes with the earnings expansion management is targeting.

On that front, BAT has pencilled in adjusted earnings-per-share growth of 5% to 8% for 2026, while JPMorgan's 3% to 5% revenue forecast covers 2027. The two figures describe different periods and different metrics, but together they sketch the prerequisite for the optimistic scenario: sales growth that actually flows through to the bottom line. The company's adjusted operating margin stands at 43.7%, and pairing that profitability with continued new-product expansion is what would make the investment case compelling.

What Could Break the Thesis

The same growth story cuts both ways. The more the bull case leans on US market-share gains, the more a slowdown in that trend would hurt. Investors would be wise to watch for durability rather than extrapolate recent momentum indefinitely.

Traditional cigarettes remain part of the equation too. The positive scenario assumes a recovery in that business; should it disappoint while new-product growth cools, the foundation for optimistic expectations would come under pressure.

Then there is the balance sheet. BAT aims to bring net debt down to 2 to 2.5 times adjusted EBITDA by year-end, meaning the company must deliver on deleveraging alongside growth and earnings. A combination of weaker operating momentum and a missed debt target would weigh on the growth arguments and force a fresh look at the stock's defensive credentials.

Buybacks Running Alongside the Turnaround

Separately, BAT repurchased roughly 587,000 of its own ordinary shares under its buyback programme, with the company stating the stock is intended for cancellation. The purchases spanned several trading sessions. Unlike the analyst note, which looks ahead to future revenue, this announcement concerns shares already acquired — a reminder that capital returns are proceeding in parallel with the operational story.

For now, the bullish case has an operating footing as long as new categories stay on the projected growth path and adjusted earnings keep pace. The year-end debt level looms as the next concrete checkpoint, alongside the annual targets for new categories and adjusted EPS that will frame coming results. Investors face a straightforward choice: back the transformation now, or wait for broader confirmation across group revenue, earnings and the balance sheet.