While the FTSE 100 has delivered a rather muted performance thus far in 2014, British American Tobacco (LSE: BATS) (NYSEMKT: BTI.US) has made an encouraging start. Indeed, while the wider index is flat for the first four months of the year, British American Tobacco has managed to post gains of 4.5%.
But can it continue to deliver above-average growth through the rest of the year and beyond?
A Track Record Of Growth
Since the start of the credit crunch, British American Tobacco has been able to deliver very strong and consistent growth numbers. For instance, over the last five years, the company has increased earnings per share (EPS) in each year, with three of those years seeing double-digit gains. This is very impressive, with very few of British American Tobacco’s index peers being able to compete with such figures. Importantly, the EPS increases show that even during challenging economic conditions, British American Tobacco could prove to be a reliable growth stock.
Strong Future Prospects
Looking ahead, British American Tobacco’s growth potential appears to be slightly above the market average. Certainly, 2014 looks set to be a disappointment, with EPS unlikely to do much more than tread water, but looking beyond this year highlights a return to mid to high single-digit growth over the medium term.
Indeed, the company is forecast to increase EPS by 9% in 2015 and by 8% in 2016, which is slightly ahead of the FTSE 100’s expected growth rate of between 4% and 7% over the same time period. Furthermore, British American Tobacco is likely to deliver such numbers irrespective of whether economic conditions are favourable or not.
Growth At A Reasonable Price?
Of course, there are a number of FTSE 100 listed companies that offer above-average growth prospects. However, where British American Tobacco shows appeals is in offering investors a potent mixture of sound fundamentals (for instance a robust balance sheet, an attractive portfolio of brands and strong cash flow) in addition to attractive growth prospects. Furthermore, this all comes at a reasonable price, with British American Tobacco currently trading on a price to earnings (P/E) ratio of 15.5.
Although slightly ahead of the FTSE 100’s P/E of 13.6, higher growth prospects and consistency of growth mean that the premium appears to be worth it. Indeed, British American Tobacco appears to be a super (and highly consistent) growth stock.
