Bank of America upgrades Imperial Brands on improving outlook and attractive valuation (IMB)

Bank of America has upgraded Imperial Brands (LSE:IMB) from Neutral to Buy, arguing that investor concerns over the tobacco group’s earnings outlook have become overdone. The broker believes improving conditions in Australia, combined with the company’s valuation, create an attractive opportunity for investors.

Price target increased

Bank of America raised its price target for Imperial Brands to 3,200 pence from 2,675 pence, suggesting potential upside of around 17 percent from current trading levels.

Shares in Imperial Brands rose 0.6 percent during Tuesday’s trading session in London, outperforming the wider FTSE 100 index, which declined 0.7 percent.

Australia concerns seen as overestimated

The broker said recent worries about earnings growth in the 2026 financial year have largely centred on developments in Australia, where changes to tobacco excise duties and tighter enforcement measures have affected industry sales volumes.

However, Bank of America believes the market has placed too much emphasis on these challenges. The broker noted that Australia contributes only around 4 percent of Imperial Brands’ earnings before interest and tax and expects stronger pricing and market share gains to offset near-term weakness. It also forecasts that the Australian business will make a positive contribution to earnings again from the 2027 financial year.

Pricing power and valuation support investment case

Beyond Australia, the broker highlighted Imperial Brands’ continued pricing strength across its traditional tobacco portfolio, while next-generation products remain an additional source of growth.

Bank of America also expects foreign exchange movements to become more supportive from the second half of 2027 if current currency trends continue.

The broker concluded that Imperial Brands is trading on an attractive valuation compared with its peers despite delivering consistent earnings before interest and tax growth of between 3 percent and 5 percent. It believes this provides investors with an appealing entry point ahead of the company’s 2026 annual results later this year.