A growing number of U.S. states are legalizing marijuana. About 44% of Americans live in states where recreational cannabis usage is legalized. Last year, legal cannabis sales hit $25 billion. The industry’s legal sales are expected to reach $40 billion by 2025.
On top of it, a U.S. Senate bill has been introduced for the federal legalization of marijuana, with clear support for comprehensive legalization on the House side. Moreover, Germany’s government is moving forward to legalize cannabis consumption which could create a ripple effect for more legalization.
The global cannabis market is expected to reach $197.75 billion by 2028, growing at a CAGR of 32%. Hence, we think fundamentally strong pot stocks British American Tobacco p.l.c. (BTI), Imperial Brands PLC (IMBBY) and Constellation Brands, Inc. (STZ) might be solid buys now.
British American Tobacco p.l.c. (BTI)
BTI offers tobacco and nicotine products to consumers globally. The company offers its products under the Kent, Dunhill, Lucky Strike, Pall Mall, Rothmans, Camel, Newport, Natural American Spirit, being Vapor, THP, and Modern Oral brands. It is headquartered in London, the United Kingdom.
On July 21, BTI launched glo hyper X2 tobacco product in Tokyo, Japan, from its global heated tobacco brand. This new launch is expected to bolster the company’s revenue.
On May 12, BTI announced that its U.S. indirect subsidiary R. J. Reynolds Vapor Company, had received Marketing Authorization from the U.S. Food and Drug Administration (FDA) for certain Vuse Ciro and Vuse Vibe products. The authorization could allow the products to remain in the U.S. market, which might benefit the company.
For the fiscal year ended December 31, 2021, BTI’s profit from operations increased 2.7% year-over-year to £10.23 billion ($12.27 billion). Its profit for the year improved 6.2% year-over-year to £6.97 billion ($8.36 billion). The company’s earnings per share came in at 295.60p, up 6% from the prior year.
The consensus EPS estimate of $4.73 for the fiscal year ending December 2023 indicates a 7% improvement year-over-year. The consensus revenue is expected to be $34.21 billion for the same period, indicating a growth of 4.6% year-over-year.
The stock has gained 9.9% over the past year and 9.7% year-to-date to close its last trading session at $41.02.
BTI’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
BTI is rated a B in Stability and Sentiment. Within the A-rated Tobacco industry, it is ranked #6 out of 10 stocks. Click here to see additional POWR Ratings for Growth, Value, Momentum, and Quality for BTI.
Imperial Brands PLC (IMBBY)
IMBBY, based in Bristol, U.K., manufactures, imports, and sells tobacco and tobacco-related products. The company offers cigarettes, fine cut and smokeless tobacco, papers, and cigars, as well as a next-generation product (NGP) portfolio.
For the half-year that ended March 31, IMBBY’s adjusted operating profit came in at £1.60 billion ($1.92 billion), representing a 0.9% year-over-year growth. Its adjusted profit for the period grew 5.3% from the prior-year period to £1.12 billion ($1.35 billion). The adjusted earnings per ordinary share increased 5.6% from the prior-year period to 113 pence.
Analysts expect IMBBY’s revenue for the fiscal year ending September 2023 to be $10.78 billion, indicating a 2.8% year-over-year growth. The company’s EPS for the same period is expected to increase 9.4% from the prior year to $3.26.
IMBBY has gained 5.1% over the past year and 1.9% over the past month to close its last trading session at $22.32.
It is no surprise that IMBBY has an overall B rating, which translates to Buy in our POWR Rating system. In addition, it has a B grade for Value and Stability. It is ranked #2 in the Tobacco industry.
Beyond what we’ve stated above, we have also given IMBBY grades for Growth, Momentum, Sentiment, and Quality. Get all the IMBBY ratings here.
Constellation Brands, Inc. (STZ)
STZ produces, imports, markets, and sells beer, wine, and spirits under several brands, including Corona Extra, Corona Premier, 7 Moons, Cook’s California Champagne, Casa Noble, and Copper & Kings.
On June 30, STZ announced an agreement to eliminate its Class B common stock. The Company expects to realize a number of corporate governance and other benefits from the proposed reclassification, including operating cost savings of around $15-20 million in fiscal 2022 and administrative savings from maintaining the Class B common stock.
In April, the company announced that it had entered into an accelerated share repurchase agreement to repurchase $500 million of its Class A common stock. The repurchased shares were expected to become treasury shares.
For the first quarter that ended May 31, STZ’s net sales increased 16.6% year-over-year to $2.36 billion. Its operating income increased 987.1% from the prior-year quarter to $816.40 million.
Net income attributable to STZ came in at $389.50 million, up 142.9%, and its net income per common share was $2.06 for class A stocks which showed a growth of 143.5% from the prior-year period.
Street EPS estimate for the fiscal second quarter (ending August 2022) of $2.76 reflects a rise of 15.8% year-over-year. Likewise, Street revenue estimate for the same quarter of $2.50 billion indicates an improvement of 5.3% from the prior-year period.
Additionally, STZ has topped consensus EPS estimates in three of the trailing four quarters, which is impressive. STZ’s stock has gained 8% over the past year and 6.8% over the past month to close its last trading session at $243.17.
This promising prospect is reflected in STZ’s POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
STZ has an A grade for Growth and a B for Sentiment and Quality. It is ranked #13 of 35 stocks in the A-rated Beverages industry. Click here to see the additional POWR Ratings for STZ (Value, Momentum, and stability).
BTI shares were trading at $41.22 per share on Thursday afternoon, up $0.20 (+0.49%). Year-to-date, BTI has gained 14.16%, versus a -15.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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