For the last five years, Diageo (LSE: DGE) shares have repeatedly fallen. There have been one or two jumps along the way, but they were never sustained. Until now…
Shares in the beleaguered FTSE 100 spirits maker have climbed almost 15% in the last month, lifting to around 1,877p. But they’re still roughly 50% below their level five years’ ago, when they traded either side of 4,000p. I’m not expecting them to recover their former glories any time soon, but is this a buying opportunity?
Can ‘Drastic Dave’ deliver?
For years, Diageo was seen as one of the best blue-chip investments money could buy. Its global brands include Johnnie Walker, Captain Morgan, Tanqueray, Baileys and, of course, Guinness.
But investors lost faith amid falling sales and fears that people will continue to drink less because of health concerns and changing attitudes among younger generations. Weight-loss drugs may also be having an impact, along with the cost-of-living crisis. That’s a nasty cocktail to contend with.
I think we can dismiss some of the gloomier predictions. Humans and our primate ancestors have been consuming alcohol for 10m years, and brewing it for at least 13,000. It would be rather odd if we all stopped around the time I added Diageo to my Self-Invested Personal Pension (SIPP), but you never know.
Turnaround specialist Sir Dave Lewis (aka Drastic Dave) arrived in January and promptly did the last thing investors wanted, slashing the dividend by more than 50%. The yield’s now below 2%.
More positively, Lewis also launched a restructuring programme targeting $1bn of annual savings, simplified the business and agreed to sell its East African Breweries stake. He’s also keen to take full advantage of the desire for Guinness and canned cocktails.
Latest annual results (6 August) showed net sales down 3% to $19.6bn, although adjusted operating profit edged up 2% to $5.68bn. Net debt remains hefty at $20.5bn.
There was better news on 5 November. First-quarter organic sales rose 0.6%, beating expectations of a decline. North America performed better than feared, although sales there still fell 3.6%. Lewis called it a small step forward.
Where next for this FTSE 100 stock?
On 6 November, brokers at Berenberg Berg responded by reiterating their Buy recommendation and 2,223p target. It praised the better-than-expected organic sales growth and reckons the shares look attractively valued.
Deutsche Bank was less enthusiastic, reiterating Hold and nudging its target up a notch from 1,734p to 1,740p. It acknowledged improved sales but noted that Europe, the Middle East, Africa and India performances disappointed.
That’s quite a difference of opinion. If Berenberg’s right, there’s almost 20% growth available from today’s price, although Deutsche sees a modest 7% dip.
With AI and technology stocks under pressure, I’m wondering whether investors might finally return to established blue-chips such as Diageo.
I think it’s worth considering as a long-term recovery stock, with a price-to-earnings ratio of 15.2x. But Lewis has plenty of work to do, and this turnaround won’t happen overnight. Especially as the cost-of-living crisis is showing little sign of ending any time soon.
Here’s another FTSE 100 growth stock that enjoyed years of success before stumbling. I think it’s worth a close look too…
What growth stock do we like better than Diageo Plc right now?
One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential growth.
And the best bit is that you can see it for yourself, right now, absolutely free of charge!
No jargon. No hard sell. Just a clear look at a growth share idea we think is worth your time.
Harvey Jones owns shares in Diageo
For the last five years, Diageo (LSE: DGE) shares have repeatedly fallen. There have been one or two jumps along the way, but they were never sustained. Until now…
Shares in the beleaguered FTSE 100 spirits maker have climbed almost 15% in the last month, lifting to around 1,877p. But they’re still roughly 50% below their level five years’ ago, when they traded either side of 4,000p. I’m not expecting them to recover their former glories any time soon, but is this a buying opportunity?
Can ‘Drastic Dave’ deliver?
For years, Diageo was seen as one of the best blue-chip investments money could buy. Its global brands include Johnnie Walker, Captain Morgan, Tanqueray, Baileys and, of course, Guinness.
But investors lost faith amid falling sales and fears that people will continue to drink less because of health concerns and changing attitudes among younger generations. Weight-loss drugs may also be having an impact, along with the cost-of-living crisis. That’s a nasty cocktail to contend with.
I think we can dismiss some of the gloomier predictions. Humans and our primate ancestors have been consuming alcohol for 10m years, and brewing it for at least 13,000. It would be rather odd if we all stopped around the time I added Diageo to my Self-Invested Personal Pension (SIPP), but you never know.
Turnaround specialist Sir Dave Lewis (aka Drastic Dave) arrived in January and promptly did the last thing investors wanted, slashing the dividend by more than 50%. The yield’s now below 2%.
More positively, Lewis also launched a restructuring programme targeting $1bn of annual savings, simplified the business and agreed to sell its East African Breweries stake. He’s also keen to take full advantage of the desire for Guinness and canned cocktails.
Latest annual results (6 August) showed net sales down 3% to $19.6bn, although adjusted operating profit edged up 2% to $5.68bn. Net debt remains hefty at $20.5bn.
There was better news on 5 November. First-quarter organic sales rose 0.6%, beating expectations of a decline. North America performed better than feared, although sales there still fell 3.6%. Lewis called it a small step forward.
Where next for this FTSE 100 stock?
On 6 November, brokers at Berenberg Berg responded by reiterating their Buy recommendation and 2,223p target. It praised the better-than-expected organic sales growth and reckons the shares look attractively valued.
Deutsche Bank was less enthusiastic, reiterating Hold and nudging its target up a notch from 1,734p to 1,740p. It acknowledged improved sales but noted that Europe, the Middle East, Africa and India performances disappointed.
That’s quite a difference of opinion. If Berenberg’s right, there’s almost 20% growth available from today’s price, although Deutsche sees a modest 7% dip.
With AI and technology stocks under pressure, I’m wondering whether investors might finally return to established blue-chips such as Diageo.
I think it’s worth considering as a long-term recovery stock, with a price-to-earnings ratio of 15.2x. But Lewis has plenty of work to do, and this turnaround won’t happen overnight. Especially as the cost-of-living crisis is showing little sign of ending any time soon.
Here’s another FTSE 100 growth stock that enjoyed years of success before stumbling. I think it’s worth a close look too…
What growth stock do we like better than Diageo Plc right now?
One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential growth.
And the best bit is that you can see it for yourself, right now, absolutely free of charge!
No jargon. No hard sell. Just a clear look at a growth share idea we think is worth your time.
Harvey Jones owns shares in Diageo
