Diageo: P/E at 20x Again Ahead of FY23 Results

Company Update (DGE LN) (Buy)

Highlights

• Diageo shares are at 20.4x CY22 EPS and 24.5x FY19 EPS

• We believe CY22 may have over-earned but only modestly

• FY23 should show resilient demand but also prior-year restocking

• Recent results at peers are mixed as each company is different

• We see 56% total return (16.3% p.a.) by June 2026. Buy

Introduction

We revisit our Diageo investment case ahead of FY23 results scheduled on August 1, based on Q1 CY23 results among its peer group as well as Diageo management’s comments at an investor event in June.

Diageo is likely to achieve a high-single-digits EPS CAGR over time, but currently has a P/E of just 20.4x relative to CY22 (and 24.5x relative to FY19). The company may have over-earned in CY22 due to COVID-19’s boost to demand and retailers restocking, but we believe only modestly. In general the U.S. consumer appears to remain resilient; there is some volume pressure in the market, but Diageo growth should be more resilient thanks to its focus on premium brands. Results at peers show…