Goldman Sachs has added Imperial Tobacco (LON:IMT) to its 'conviction buy' list from 'neutral', saying it believes the firm is nearing the end of the earnings downgrade cycle.
The broker has also lifted the price target on the stock to 2840p from 2545p previously.
British American Tobacco (LON:BAT) and IMPs now trade on significant price-earnings discounts compared to European based staples multinationals following such factors as a challenging consumer environment and not much investment appetite for defensive stocks, said analyst Fulvio Cazzol.
"We believe IMT is now at the end of the earnings downgrade cycle, as encouraging unemployment trends in Western Europe drive an improvement in organic growth.
"We also expect the company to distribute £8.8bn of cash over the next four years, representing 34% of the current market cap, and we do not rule out IMT being viewed as an attractive M&A target."