Diageo: Long-Term Compounder Down 23% From Peak
(Preview) Company Update (DGE LN) (Buy)
Summary
Diageo stock has now fallen by 23.0% in USD from its peak in early January, and trades at a 26.9x P/E and 2.1% Dividend Yield.
Structural growth in global spirits is continuing. Diageo now targets a sales CAGR of 5-7% and an EBIT CAGR of 6-9% in FY23-25.
Sales were 21% higher organically than before COVID-19 in H2 CY21. Q1 CY22 peer results show sector momentum is continuing.
Earnings should be resilient against recessions and inflation, as demonstrated in the Global Financial Crisis.
With shares at 3,537.5p, we expect an exit price of 5,306p and a total return of 57% (16.6% annualized) by June 2025. Buy.
Introduction
We review our investment case on Diageo PLC (NYSE:DEO) following a significant correction in its shares.
The price of Diageo’s American Deposit Receipts (“ADRs”) has fallen by 23.0% (in USD) since their peak in early January (while the price of Diageo shares in London has fallen by 13.9% in GBP).
Diageo shares are now trading at 26.9x CY21 EPS and offer a 2.1% Dividend Yi…