Analysts see the potential for gains

At present, the average analyst 12-month price target for Diageo is around £19.80. That’s around 29% above the current share price.

If it was to be hit, a £10,000 investment today would be worth around £12,900 and that’s before income. Looking at the stock’s dividend yield, dividends could add another £400 or so.

Sentiment needs to improve

Of course, there’s no guarantee that the share price will hit that level any time soon. For it to rise 29%, we’d need to see sentiment towards the FTSE 100 stock improve dramatically.

Right now, Diageo’s hugely out of favour. Not only do investors have concerns about long-term growth in a world where people are drinking less due to health concerns and GLP-1 usage but there are also concerns about the company’s balance sheet, which is loaded with debt.

Three reasons to be optimistic

But there are reasons to be optimistic looking ahead. One is that new CEO Dave Lewis is moving away from the old ‘premiumisation’ strategy towards a value-driven mass market strategy. This could help to boost top-line growth. Given that consumer spending is being squeezed today, I think it’s a smart strategy.

Another is that Lewis is making moves to cut costs. Recently, it came to light that some teams within the group are looking at headcount reductions of 20%-30%. This could potentially have a material impact on profits in the years ahead. It could also free up cash to pay down debt.

One other thing to note is that the valuation is quite low today. Looking at earnings forecasts for the financial year ending 30 June 2027, the forward-looking price-to-earnings (P/E) ratio is less than 13.

At that earnings multiple, there’s definitely scope for an upward valuation re-rating if Diageo can show an improvement in business performance. Over the last decade, it has traded at much higher valuations.

Is Diageo a good investment?

So are the shares worth considering for a portfolio or holding if someone already owns them? I believe so – I’ll be holding on to mine.

I’m not expecting them to suddenly shoot up 29% to £19.80. As I said, we need to see sentiment improve and this could take time. But taking a three-to-five year view, I see potential. If Lewis can boost top- and bottom-line growth, the shares should provide decent returns given the low valuation today and the solid dividend yield.

There are plenty of other stocks that could be worth considering as well though. And if I’m honest, Diageo’s not my top pick at the moment.

What income stock do we like better than Diageo Plc right now?

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Edward Sheldon owns shares in Diageo

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I must be mad. After all, Diageo has been the ultimate falling knife — or beer glass — in recent years. Just when you think it’s reached a bottom, that it’s safe to touch, it falls further and splashes red ink across your portfolio.

What’s more, I can’t help noticing how packed my local gym is nowadays, even on weekends when most young people used to be out drinking. There are certainly more road cyclists with their lean physiques to navigate.

Then there are Zumba, Pilates, Tabata, and other classes with strange names. And it’s not just here, as Fortune Business Insights projects that the global health and fitness club market will hit $298bn by 2034, up from $131bn last year.

Clearly, there’s a shift going on with regards to people drinking less alcohol. And it’s Gen Z leading the fitness charge.

Then again, my local pub was recently packed for the England games. Every other person was drinking Guinness — arguably Diageo’s flagship brand now — or gin cocktails, probably made with Gordon’s or Tanqueray (two of its other timeless brands).

So I’m torn on whether alcohol’s going the way of cigarettes or just in a cyclical downturn due to the cost-of-living crisis.

What do the experts reckon?

It seems like analysts are split, too. According to UBS, the key US spirits market is unlikely to strengthen anytime soon, and could even weaken faster than expected over the next year.

Still, while UBS maintains a Neutral rating on Diageo stock, it did slap a 1,600p price target on it. That’s slightly higher than the present share price, suggesting most of the negativity might be baked in.

The average price target among 21 analysts backs this up, as it’s currently 23.5% higher.

Reasons for optimism

Speaking personally, I’d snap your hand off for this return in 12 months’ time. But I haven’t invested to try and make a quick buck (or pound). I appreciate this is a multi-year turnaround operation, and I’m willing to be patient.

What gives me confidence it can be achieved? Well, Diageo still has a core portfolio of world-class drinks that are likely to command brand loyalty for decades. I’m thinking about the likes of Johnnie Walker and Guinness, which is growing in all geographic regions.

For the current fiscal year (which ended in June), Diageo expects operating profit to be flat, or grow in the low-single digits. It also expects free cash flow of about $3bn, so there does appear to be a baseline here that can be built on.

Additionally, turnaround specialist CEO Dave Lewis slashed the dividend earlier this year, creating more financial flexibility to chip away at the debt pile. Diageo also got $2.3bn for its stake in East African Breweries, a move likely to further strengthen the balance sheet.

Finally, the forward price-to-earnings ratio’s a lowly 13. At this depressed valuation, I think the stock’s worth considering, despite the obvious risks.

But for investors still unsure, Diageo’s Capital Markets Day is scheduled for 6 August. We’ll learn more about management’s turnaround strategy then.

What income 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 income.

And the best bit is that you can see if for yourself, right now, absolutely free of charge!

No jargon. No hard sell. Just a clear look at an income share we think is worth your time.

Ben McPoland owns shares in Diageo.

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The engineering giant once looked like a broken business, battered, debt-laden, and deeply out of favour with investors. Then came a new chief executive, a bold strategic reset, and a share price that went on to climb nearly 1,400% in five years.

Today, Diageo could be on the verge of delivering something similar. After falling over 60% from its 2021 peak, a new CEO has taken over, and a strategic reset has just been launched. But with the shares still in the gutter, it looks like investors have almost entirely given up hope.

So is now the time to be a contrarian and buy before the recovery begins?

The turnaround’s quietly taking shape

Last year, Diageo brought in Sir Dave Lewis as its new leader – the man who engineered one of the most celebrated corporate turnarounds in recent memory at Tesco.

Since then, the drinks giant has been steered on track to generate around $300m of cost savings by the end of 2026. At the same time, free cash flow’s expected to hit $3bn, creating valuable financial flexibility and providing capital to start deleveraging the balance sheet.

Meanwhile, outside North America, the business seems to already be bouncing back with non-core divestments underway, and organic growth on the rise.

So what are the analysts making of all this? Right now, the mood among institutional analysts seems to be cautiously optimistic. So much so that the average share price target over the next 12 months is around 27% higher than where the shares are trading today.

Yet, this might only be the tip of the iceberg. So far, Lewis has been quite confidential in his strategy to fix Diageo’s problems. But with a full unveiling expected in the coming weeks, investors will soon discover the full scale of his turnaround plan, creating a powerful catalyst that could trigger the long-awaited recovery.

What could go wrong?

As previously mentioned, outside of North America, Diageo seems to be moving in the right direction. But inside this crucial market, the landscape’s still pretty soft. Organic net sales for US spirits have dropped a painful 15.4% in its most recent quarterly results, driven by rising competition from cheaper brands.

Lewis has already acknowledged the business needs to become more competitive in this market. But that isn’t something it can fix overnight.

Even a turnaround specialist like Lewis needed several years to fix the deep-rooted problems that Tesco faced. And while Rolls-Royce proved that (post pandemic) turnarounds can be swift, it’s not sensible to assume that Diageo can be repaired at the same speed, especially with fewer tailwinds at its back.

What’s the verdict?

Despite all of its recent troubles, Diageo still owns a world-class portfolio of brands. And with early signs of improvements already materialising, today’s dirt cheap forward price-to-earnings ratio of just 12 skews the risk-to-reward ratio quite favourably, in my opinion.

A successful turnaround is far from guaranteed, and it’s likely to be a multi-year process slower than the one Rolls-Royce delivered. But for patient investors, I think Diageo shares are definitely worth mulling today.

Should you invest £5,000 in Diageo Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Diageo Plc made the list?

Zaven Boyrazian does not hold any positions in the companies mentioned.

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But I haven’t lost the faith. In fact, I recently increased my stake in the Guinness producer. In my latest investing strategy, I could go a long way to reducing my losses.

You might think I’m taking an outrageous risk given how my portfolio’s already been hammered. But here’s the thing: City analysts also think Diageo’s share price is about to hit back…

A 27% rebound?

Right now, 23 brokers have ratings on Diageo shares. And they’ve predicted the drinks giant will hit £19.66 per share over the next year. If accurate, that would turn a £9,999 investment in a Stocks and Shares ISA into £12,699 by next July, all tax free. That’s a brilliant 27% annual return.

No share price target’s set in stone. But one that’s based on the average forecast of 20+ experts carries a lot more heft. It reflects broad and balanced viewpoints of what could drive Diageo higher, as well as what might pull it lower.

So what could influence Diageo’s shares over the next 12 months and beyond?

The case for… and the case against

Key factors that could move Diageo’s share price include:

The bull case

• Accelerating cost-cutting and brand disposals under new CEO Dave Lewis.
• Stabilising sales in North America, Diageo’s single largest market.
• Expansion in mass-market spirits, and high-growth ready-to-drink (RTD) and zero alcohol lines.
• Growth in lucrative emerging markets.
• Improving cash flows that supports debt reduction.

The bear case

• Tough consumer conditions that delay any sales recovery.
• Changing consumer tastes, with people reducing their alcohol consumption.
• Fresh US tariffs that impact lines such as tequila and whiskey.
• Weak margins due to changing product mix.
• Growing competition in key categories.

Are Diageo shares a buy?

Encouragingly for existing shareholders like me, Diageo’s latest trading update showed much-awaited signs of recovery. Organic net sales were up 0.3% in the three months to March (a fall of roughly 2.5% had been expected by analysts).

North America remained a problem, but head honcho Lewis assured the market that “actions are already underway to address this.” Signs of progress when FY results are released in a fortnight could be a landmark event in the firm’s share price recovery.

If its recent sales rebound continues, Diageo’s depressed valuation could also help its share price move higher. Its price-to-earnings (P/E) ratio of 13.3 times sits miles below the 10-year average of 20-21.

With dividends included, the company could provide a total return around 30% over the next year, if analysts are correct. It’s not without risk, but I think an investment in Diageo shares is worth serious consideration.

Should you invest £5,000 in Diageo Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Diageo Plc made the list?

Royston Wild owns shares in Diageo.

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The Diageo share price is down 57% over five years and still won’t stop falling. I’ve snapped up the stock on four occasions, each time convincing myself I was getting in at a bargain price. Wrong. In total, I’m down a third.

Yet I haven’t sold. I keep telling myself that things are going to get better. I just need to be patient.

What’s gone wrong with this FTSE 100 stock?

Just look at those brands, I say. Johnnie Walker, Baileys, Smirnoff, Tanqueray and even Guinness, for crying out loud. Don’t people enjoy a drink any more?

Well, plenty of us do. But many have switched to cheaper forms of firewater, to survive the cost-of-living crisis. Diageo went big on the premium drinks market, hoping its high-end brands would dazzle the aspirational. That’s backfired given the current squeeze.

And increasingly, younger people don’t like a drink. Cash-strapped and clean living Gen Z-ers are a threat to Diageo’s bottom line. So are GLP-1 weight loss drugs, which apparently curb the desire for booze as well as food.

Yet still I cling onto my Diageo shares. While taking advantage of dips to buy more. The shares look good value today, with the price-to-earnings ratio falling just below 13. That’s roughly half its peak. But still they fall.

The dividend yield doubled to more than 5%, giving investors the consolation of income. But don’t expect that today. Incoming boss Sir Dave Lewis slashed the dividend in half, to boost the bottom line.

I still believe it can recover

Despite that, Lewis is the main reason I’m clinging on. He put Tesco back on its feet when it was down and out. I’m hoping he’ll repeat the trick here. He’s following the same playbook since joining in January. Throw out all the bad news to reduce expectations and give himself room for manoeuvre. Then do his drastic worse by slashing headcount and selling off non-core assets.

He’s also pivoting Diageo towards the mass market, by targeting the ready-to-drink canned cocktail market. It’ll take more than that to turn around a £35bn giant though. Especially one whose net debt tops £16bn.

Yet still I cling to the recovery story. It took Lewis 18 months to get the Tesco share price moving, so these are still early days. We’re due a major strategy update on 6 August. Expect more drastic measures.

Ultimately, I’m a believer in both Diageo and Lewis. Plenty still enjoy a drink, and if the global economy ever picks up, they may enjoy one more regularly. And I believe Lewis is the right person for the job. I’ve also got the ugly suspicion that if I ever sell my shares, they’ll rocket.

So I still think Diageo shares are worth considering, but the road to recovery isn’t going to be an easy one.

Should you invest £5,000 in Diageo Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Diageo Plc made the list?

Harvey Jones owns shares in Diageo.

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But things don’t appear to have gone as expected. So far (16 July), the share price performance has been underwhelming and investors appear unconvinced. But could this be about to change? Let’s see.

What’s wrong?

Although Diageo was one of the few companies to benefit from the pandemic, it’s now facing a fundamental industry-wide problem. Specifically, there’s evidence to suggest that Gen Zers are drinking less than their parents. And those consuming alcohol are moving to more up-market brands, a trend known as ‘premiumisation’.

The result? A slowing in Diageo’s net sales growth since the year ended 30 June 2021 (FY21), as follows:

• FY21: +16.1%
• FY22: +19.3%
• FY23: +0.2%
• FY24: -1.4%
• FY25: -0.1%

Set alongside higher supply chain costs, there’s been a significant impact on the group’s bottom line. Since the pandemic, it’s reported earnings per share (before exceptional items) as follows:

• FY21: 158.8 cents
• FY22: 201.9 cents
• FY23: 196.5 cents
• FY24: 179.6 cents
• FY25: 164.2 cents

The group’s also carrying heavy borrowings. At 31 December 2025, its net debt was $21.7bn, over three times its FY25 EBITDA (earnings before interest, tax, depreciation, and amortisation).

Not over yet

But I still think the group has lots going for it. It owns some of the biggest names in the business. In fact, it has brands worth $13bn (based on global sales). All of these are positioned towards the premium end of the market, which should help with the current trend towards more refined drinking.

Analysts’ consensus is that the group’s shares offer good value at the moment. Their target of £19.26 is around 27% higher than the current share price.

Also, a recent deal suggests its shares are undervalued. Last December, the group sold its interests in two businesses in Africa for 17 times EBITDA. If Diageo was valued similarly, its shares would be worth over twice as much!

Don’t get me wrong, I’m not saying an £80bn+ market-cap is justified. But it does point to an under-appreciation of the group by the City.

Incidentally, Africa was the only region to report sales volume growth when the group released its FY26 half-year numbers.

What next?

So far, Sir Dave’s been relatively quiet about his plans although conventional turnaround initiatives like a headcount reduction and asset sales are underway. In terms of products, it’s believed that he’s looking to capture more of the growing ready-to-drink canned cocktails market.

To preserve cash, he’s also slashed the group’s dividend by 50%. We will learn more on 6 August, when the group’s strategy update is released.

Personally, I think now could be a good time to consider buying Diageo shares. The last time the stock was trading consistently around £15 was in early 2012. I have faith that the turnaround will soon start to take effect and, assuming it does, I suspect the share price will move steadily higher.

This could come as early as next month if the group can show it’s growing again and investors like the new strategy.

Should you invest £5,000 in Diageo Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Diageo Plc made the list?

James does not hold any positions in the companies mentioned.

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So with investor sentiment steadily improving and the business starting to show new signs of life, is now a good time to consider buying Diageo shares? And if so, how much money could investors potentially make over the next 12 months?

This is what the experts are thinking…

A feeling of cautious optimism

Looking at the latest analyst projections, the mood surrounding Diageo seems to be cautiously optimistic. While there’s a broad range of price targets, the average consensus values Diageo shares at 1,913p – around 24% higher than where the stock trades today.

In terms of money, that means if I were to invest £10,000 today, I could have close to £12,400 by this time next year, or even higher if the more optimistic projections are met.

So what’s driving this renewed confidence?

A recovery story taking shape

The optimism surrounding Diageo squares entirely with Lewis’s strategic reset, which is starting to show early signs of tangible progress.

In Diageo’s third quarter results (ended in March), Europe delivered organic net sales growth of 8.8%, with Guinness continuing its remarkable run, posting double-digit net sales growth in the UK and Ireland.

Latin America and the Caribbean similarly grew by a strong 16.2% organically during the same period, driven in particular by surging demand for Scotch Whisky across Brazil and beyond. And even Africa delivered a solid 17.1% organic sales expansion.

The Accelerate programme is delivering too. Around $300m in cost savings are on track for delivery this year, and capital expenditure has already been cut to the lower end of the $1.2bn-$1.3bn guidance range versus the $1.5bn spent last year.

Pairing all this with full-year free cash flow expected to land at $3bn, up from $2.7bn a year ago, and Diageo appears to be demonstrating some welcome financial discipline.

What could derail progress?

While Diageo seems to already be performing better in certain key markets, the honest caveat is North America.

US Spirits organic net sales fell 15.4% in the third quarter – far worse than the rest of the portfolio. And it’s not just down to soft market conditions, as Diageo’s competitors have sucessfully been undercutting its brands.

This is particularly problematic as North America accounts for around 38% of group net sales, meaning the group’s core market is under fire. And to make matters worse, lacklustre performance in China is also adding more pressure to revenue and earnings growth – two problem markets that Lewis has yet to deliver any improvement.

So what should investors make of all this?

Is this the right moment to buy Diageo shares?

Next month, Lewis will be unveiling the full details of his multi-year turnaround strategy, which investors have only seen glimpses of until now. And with Diageo shares currently priced so cheaply, this could prove to be a powerful catalyst that sparks fresh recovery excitement.

With that in mind, it’s hard not to be tempted by Diageo’s discounted valuation given the favourable risk-to-reward ratio. That’s why investors may want to consider taking a closer look at this one.

Should you invest £5,000 in Diageo Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Diageo Plc made the list?

Zaven Boyrazian does not hold any positions in the companies mentioned.

The post By July 2027, Diageo shares could turn £10,000 into… appeared first on The Twelfth Magpie.

The share price has tumbled by 23% over the past year alone and 56% over five years.

As investors, we often hear that past performance is not necessarily a guide to what will happen in future.

While intellectually I know this to be true, it can sometimes be hard to look at Diageo’s storied history, brilliant portfolio of premium drinks brands and massive cash generation potential and not believe that, sooner or later, the glory days will be back.

But what if that never happens?

A shifting demand landscape could be very bad news

For starters, there are industry trends to consider. Over the past couple of decades, alcohol consumption per capita worldwide has declined considerably. Global beer sales have shrunk dramatically, even though Guinness is bucking that trend.

Spirits are also losing ground with younger consumers who are more likely than older adults to be teetotal or only moderate drinkers.

There are other alarm bells when it comes to premium spirits too. High-priced drinks are struggling to maintain their appeal in a weak economy.

But even putting that to one side for a moment, the bigger trend of declining alcohol demand is an existential threat for Diageo. The FTSE 100 firm has been growing its low- and no-alcohol business with brands such as Seedlip and Guinness 0.0. But getting into what are essentially soft drinks is a different business space to where Diageo’s core expertise lies – and a crowded one.

The company’s hurt its own investment case

The growth angle then, may have weakened or vanished in recent years. But what about income? After all, Diageo has long proven its massive cash generation potential. Until a couple of years ago, it had an enviable record of having grown its dividend per share annually for decades.

This year though, a new chief executive has arrived and the board has halved the dividend. Seen positively, that can be interpreted as fiscal prudence given the company’s current challenges and net debt of $21.7bn.

But the dividend was a key plank of the investment case in recent years, given the Diageo share price’s disappointing performance. Halving it makes the share less attractive to many investors, including me.

For now I am hanging onto my holding but will not be adding to it.

It could be make-or-break time for Diageo’s strategy

Having Guinness (and a few other beer brands) under the same roof as premium spirits should offer some benefits of combination, like selling into the same licensed premises.

But until the mid-1980s, these were two different businesses. With Guinness’s recent strong performance, some investors see a case to break Diageo up.

Next month sees the scheduled announcement of the company’s new strategy. Given its challenges, getting it right could help boost the share price from today’s depressed level.

I fear that getting it wrong though, risks the Diageo share price never getting back to where it once traded, given that the world is changing around it.

Before the new strategy is revealed and starts to show its impact, I see no compelling case for investors to consider Diageo.

What income 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 income.

And the best bit is that you can see if for yourself, right now, absolutely free of charge!

No jargon. No hard sell. Just a clear look at an income share we think is worth your time.

Christopher Ruane owns shares in Diageo.

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The shares are up 13% in the past three months. On 7 April, they were trading around 1,387p each — now, they’re worth over 1,564p.

That means a £5,000 investment just three months back would be worth £5,650 now. And that’s not even including any dividends locked in during the period.

That’s a big jump for a stock that’s been in steady decline for over five years. So is it back on track — or is this just a short-term bounce?

What brokers are saying

Earlier this year, Berkshire Hathaway famously sold its position in Diageo for an estimated 50% loss. Did the major US investment firm, led by Warren Buffett until his recent retirement, sell too soon?

Several brokers seem to think so. A few weeks ago, both Berenberg and Deutsche Bank reiterated a Buy rating on the stock, with price targets of 2,223p and 1,759p respectively. RBC Capital also has a Buy rating open on the stock with a 2,000p target.

Looking at other ratings across the board, the overall consensus seems to lean towards a Strong Buy. A few average forecasts I’ve seen range between 1,876p and 1,945p — implying an expected 20%-25% gain in the coming 12 months.

That doesn’t sound like a small bounce to me. But what is Diageo doing to ensure those forecasts become a reality?

Turnaround strategy

Diageo’s turnaround strategy under new CEO Sir Dave Lewis seems to be well underway. It started with a dividend cut earlier this year, which hurt, but was clearly the right move. In its Q3 trading statement for the nine months to 31 March 2026, organic sales were down 1.9%. 

That’s slightly better than management’s FY26 guidance of a 2%-3% loss, so maybe things are already improving. But while Europe and Latin America are improving, consistent losses in key North American markets are what’s killing Diageo. If it can’t reverse that trend, a sustained recovery could be difficult.

Here’s a quick summary of its results and guidance:

• FY26 guidance: organic sales down 2%-3%, operating profit flat to low single-digit growth.
• Q3 FY26: organic net sales down 1.9%, North America down high single-digit.
• Cost savings: ‘Accelerate’ programme on track for about $300m in FY26.

Despite the dividend cut, the 4% yield is still attractive. Combined with an estimated forward price-to-earnings (P/E) ratio of just 13, and the income and value appeal is clear.

What’s the long-term outlook?

Diageo is not alone. US-based companies like Constellation Brands, Boston Beer, and Molson Coors have all lost between 20% and 40% in the past two years. Higher living costs combined with a fall in drinking rates are key reasons.

But this has happened in prior decades, and in each instance, discretionary spending eventually improved.

So yes, it could be a long wait but it’s still worth considering. With a strong turnaround strategy already in process, I think the low-priced shares could handsomely reward patient investors.

What income 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 income.

And the best bit is that you can see if for yourself, right now, absolutely free of charge!

No jargon. No hard sell. Just a clear look at an income share we think is worth your time.

Mark Hartley owns shares in Diageo.

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What’s gone wrong for this once-great British drinks business and its famous brands?

Diageo is depressed

Diageo stock is the FTSE 100‘s sixth-worst performer over five years and the eighth-worst over 12 months. This suggests that the rot set in several years ago and has yet to be stopped.

One obvious trigger for this trend was the Covid-19 crisis of 2020/21. During social lockdowns, Diageo’s global sales slumped. But when the world started partying again, group revenues and profits soared to new highs.

On 31 December 2021, Diageo stock ended the year at 4,036p — close to its record high. Unfortunately, the shares have plunged persistently since then. At their 2026 low, they slumped to 1,350p on 23 March.

However, since its spring low, the Diageo share price has bounced back. As I write, it stands at 1,584.6p, up 17.4% from this year’s bottom. This values the global drinks Goliath at £35.2bn — down a whopping 60.9% from its end-2021 valuation.

Suffering shareholders

For the record, my family portfolio owns Diageo shares, having paid 2,806.6p a share for our stake in January 2024. To date, we are sitting on a paper loss of 43.5% in roughly 30 months. Like other long-suffering Diageo shareholders, the post-Covid party turned into a nasty hangover for us.

But why haven’t I cut our losses by selling out and moving on? After all, to get back our initial investment, the shares would have to surge by 77.1% from their current price. To me, that appears a very tall order.

One reason I kept our shares is that they previously offered a trailing dividend yield of 4% a year. By collecting these cash payouts and reinvesting them by buying more stock, we boost our ownership level and our future returns. Then again, Diageo’s dividends are being cut by new CEO ‘Drastic’ Dave Lewis.

Another reason for holding is that I built our family portfolio to be a balanced, diversified asset base. By doing so, I hoped to build a long-term family fund that required little tampering.

What next?

Nearly 40 years of investing experience has taught me that I cannot predict the future. For example, the only UK share we sold in the past six years promptly soared weeks later, attracting a takeover bid at a hefty premium in May 2024. Oops.

Summing up, Diageo shares have been a disaster for shareholders for five years. But past performance is an imperfect guide to future returns, as I know all too well. The new CEO is taking radical steps to revamp this business by cutting costs to invest in strong brands and growing markets.

Finally, given its ongoing decline, Diageo might attract takeover bids from global rivals or cash-rich private-equity funds. At these price levels, industry bidders might find the group an attractive beverage to swallow!

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Cliff D’Arcy has an economic interest in Diageo shares.

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