Could Diageo Shake Underperformer Tag?

Diageo’s shares (LON: DGE) were an underperformer through 2024, with a loss of more than 10% coming against the FTSE 100 index’s gain of 5.7%. News of the U.S Surgeon General issuing an advisory on the cancer risk link to alcohol consumption, and potential impacts of risk warnings on revenue were felt in the stock at the end of last week, yet analysts are so far holding firm.

BofA Securities has reaffirmed its bullish stance on Diageo PLC, maintaining a Buy rating and a price target of 2,800. Despite an anticipated decline in earnings per share (EPS), several factors suggest a positive outlook for the company.

Diageo, known for its strong market presence and popular brands such as Don Julio and Crown Royal, is currently trading at 2,533p with a market capitalisation of £56.24billion.

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Analysts assert that Diageo appears to be undervalued, providing future potential for investors. Although Pistacchi has revised the EPS projections down by 3-4% due to currency fluctuations and reduced income from associates like Moet Hennessy, the expected EPS is anticipated to decline by 7% to 100p year-on-year. This adjustment accounts for external factors affecting the earnings.

Diageo’s financials remain solid, with an annual revenue of $20.27 billion and a gross profit margin of 60.5%. The company also boasts a 4.13% dividend yield and maintains a fair financial health rating.

Consensus price targets are indicate the stock could be on track for some upside in the year to come, and with the FTSE struggling to break out of range, Diageo may move out of the underperformer territory.

While some short-term forecasts show a dip in certain financial metrics, the long-term outlook for Diageo remains bullish according to analysts. Time will tell how potential shifts in requirements stateside could impact the business long term, but for now, Diageo is trading up 1.12% on the day.