BTI Up 13.68% Since 7/1, The 8.45% Yield Exceeds 2024 P/E Of 7.23

Core Viewpoint - BTI is seen as an undervalued company with strong financials and a significant opportunity for growth, particularly in the smokeless product segment, despite the ongoing stigma surrounding the tobacco industry [2][9][13]. Financial Performance - BTI's shares have increased by 16.81% since early April, outperforming the S&P 500, which rose by 4.10%. The total return, including dividends, is 19.62% [2]. - The company generated $15.99 billion in EBITDA over the trailing twelve months, resulting in a net debt to EBITDA ratio of 2.67x, indicating a strong financial position [6]. - In Q2, BTI reported $7.8 billion in revenue and a gross profit of $6.43 billion, achieving a gross profit margin of 82.46% and a profit margin of 36.4% [13]. Product Portfolio and Market Strategy - BTI has a diverse product portfolio, including traditional cigarettes and a growing range of smokeless products, with 17.9% of revenue now coming from smokeless products, up 1.4% since the end of 2023 [3]. - The company added 1.4 million consumers to its smokeless brands in Q2, bringing the total to 26.4 million [3]. - BTI has received authorization to market its Vuse Alto device in the U.S., which is expected to enhance its performance in the coming years [3]. Valuation and Growth Potential - BTI is trading at less than 8 times earnings, with expected earnings growth of 5.35% over the next two years, making it a compelling value opportunity compared to peers like Altria Group and Philip Morris [7]. - The company is projected to generate $10.8 billion in earnings from operations in the 2024 fiscal year, with a dividend payout of $2.97 per share, representing 61.11% of projected EPS [8]. Share Buyback and Retained Earnings - BTI repurchased 15.19 million shares in the first half of 2024 and plans to allocate GBP700 million ($901.04 million) for buybacks in 2024 and GBP900 million ($1.16 billion) in 2025, while retaining $3.3 billion in earnings for further investments [8]. - After paying dividends, BTI expects to retain $4.2 billion in profitability from 2024's earnings, allowing for continued deleveraging and investment in growth [8]. Market Outlook - The tobacco industry is perceived to be undervalued, and BTI's recent share price increase may signal the beginning of a sustainable rally, driven by strong profitability and a high dividend yield exceeding 8% [9][14]. - The market may start to favor value companies, positioning BTI favorably for future appreciation as it continues to deliver strong financial results [9][14].