Diageo Shares Holding 2,000p Level as Goldman Sachs Upgrades From Sell

Diageo is showing signs of recovery, buoyed by an upgrade from Goldman Sachs and a renewed focus on cost-saving measures. This has helped support Diageo's share price (LON:DGE) in recent sessions, with DGE rallying 11.6% on week and seeing an open and hold above the psychologically important 2,000p level.

Goldman Sachs analyst Olivier Nicolai upgraded Diageo to Neutral from a Sell rating, setting a price target of 2,000p. This shift in sentiment is driven by the firm's belief that downside risk is limited in fiscal year 2026. Nicolai anticipates that new management’s intensified cost-saving initiatives will support best-in-class margins and stabilize earnings.

However, he cautioned that visibility remains low, and the positive outlook is contingent on a recovery in the second half of the year. The firm projects that while cost savings should bolster margins in FY26, top-line growth will be crucial from FY27 onwards for continued margin progression, and expects a positive step-up in free cash flow.

Diageo's recent annual financial results provided further context for the upgrade.

Despite a $200 million impact from U.S. tariffs, the company met expectations and announced an increased cost-saving target of $625 million over three years, up from $500 million. This announcement triggered a 6% rise in Diageo's share price on August 5th. 

For the fiscal year ending June 2025, Diageo reported revenue of $27.96 billion and profit before tax of $3.54 billion. Adjusted earnings per share (EPS) for FY25 were 164.2¢, down from 179.6¢ in FY24, reflecting ongoing margin pressures. Diageo's dividend yield is just over 4%, covered 1.7 times by historic earnings, suggesting a reasonable level of payout safety. Return on equity (normalized) remains notably high at 37.46%, with return on assets at 8.10%.

The next final dividend (62.98¢) goes ex-dividend on October 16, 2025, with payment due December 4, 2025.

Adding to the strategic shifts, Diageo has reportedly engaged Bank of America Corp. and Goldman Sachs Group Inc. to conduct a strategic review of its East African Breweries Ltd. (EABL) unit. This move is part of Diageo's broader strategy to adopt an asset-light model, aiming to free up capital for revitalizing growth.

A potential sale could attract investors willing to invest more in the beer segment, which Diageo considers less central to its global spirits interests.

While the Goldman Sachs upgrade provides a positive signal, analysts emphasize that a sustained recovery hinges on improved sales growth looking forward. The company anticipates a slight decline in organic sales for the first half of fiscal 2026, with growth expected in the second half.

Bull Case: