On Wednesday, UBS has increased its stock price target for Imperial Brands (IMB:LN) (OTC: OTC:IMBBY) to GBP28.50, up from the previous GBP27.50, while reaffirming a Buy rating on the stock. The firm attributes this adjustment to the company's strong financial performance, noting that Imperial Brands' fiscal year 2024 organic sales and earnings per share (EPS) growth were the most robust in over ten years.
The analyst from UBS projects that Imperial Brands will continue to see growth in the upcoming fiscal year, forecasting mid-single digit organic EBIT growth at around 5.0% and a double-digit EPS increase of approximately 10.8% for FY25. The company is currently in what is described as the "acceleration phase of its plan," outpacing competitors in key metrics.
UBS highlights several factors that could drive Imperial Brands' sustained performance beyond FY25. These include gains in market share for combustibles in the U.S. and Germany, the potential success of Zone pouches in the U.S. market, which could generate sales close to GBP100 million based on current estimates, and internal efficiency improvements.
The analyst points out that a nearly 25% net generation product (NGP) EBIT margin is attainable by FY30, along with savings related to enterprise resource planning (ERP).
The financial institution also emphasizes the company's ability to deliver significant returns to shareholders. Over the next five years, Imperial Brands is expected to return approximately GBP16 billion, which is less than 80% of its current market cap.
This return is anticipated to contribute to an EPS growth of around 14%. The UBS analyst concludes that given the company's promising operational performance and reasonable valuation, the Buy rating is reiterated.
In other recent news, Imperial Brands has seen a surge in net revenue growth, exceeding estimates with a 4.6% increase for the fiscal year 2024. This growth is attributed to robust tobacco pricing and expansion in the company's Next (LON:NXT) Generation Products (NGP) segment. Despite this, the NGP segment accounts for less than 5% of total net revenue, even with a 64% increase over the past four years.
Imperial Brands' earnings per share (EPS) estimate for FY25 stands at GBP3.14, with an initial forecast for FY26 at GBP3.40. The company is targeting mid-single-digit adjusted operating profit growth for FY25, expected mostly in the second half of the year.
Recently, financial research firm CFRA raised the price target for Imperial Brands to GBP27.00, maintaining a Hold rating. Morgan Stanley (NYSE:MS) also upgraded the company's stock rating from Equalweight to Overweight, reflecting a positive outlook on the company's financial strategies. The firm anticipates Imperial Brands will repurchase approximately 25% of its market capitalization over the next three years.
Lastly, Imperial Brands has committed to returning £2.8 billion to shareholders and expects a 20% to 30% increase in revenue from next-generation products for fiscal 2024. These recent developments underscore the company's strong financial position and growth potential.
InvestingPro Insights
Building on UBS's positive outlook for Imperial Brands (OTC: IMBBY), recent data from InvestingPro provides additional context to the company's financial health and market performance. The stock's P/E ratio of 8.33 and an adjusted P/E ratio of 7.87 for the last twelve months as of Q4 2024 suggest that Imperial Brands is trading at a relatively low earnings multiple, aligning with UBS's assessment of reasonable valuation.
InvestingPro Tips highlight that Imperial Brands has maintained dividend payments for 28 consecutive years and currently offers a significant dividend yield of 3.83%. This supports UBS's projection of substantial shareholder returns over the next five years. Furthermore, the company's strong return over the last three months (14.64%) and six months (30.48%) corroborates the analyst's positive stance on the stock's performance.
The data also reveals that Imperial Brands is trading near its 52-week high, with a price at 99.94% of its 52-week peak. This, combined with the company's year-to-date total return of 42.35%, underscores the market's confidence in Imperial Brands' strategic direction and financial results.
For investors seeking more comprehensive analysis, InvestingPro offers 17 additional tips for Imperial Brands, providing a deeper understanding of the company's financial position and market dynamics.
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