Diageo: Solid Blue Chip Growth Stock Down 14% Year-To-Date

(Preview) Company Update (DGE LN) (Buy)

Summary

• Diageo shares are down 13.7% year-to-date in U.S. dollars, and now have a 25.4x P/E and a 2.0% Dividend Yield.

• It is a blue-chip stock offering a solid return; we believe management will achieve its targeted 6-9% organic EBIT CAGR in FY23-25.

• While earnings had been volatile in the past, they always recovered strongly, and will likely be more resilient in the next downturn.

• Consumer demand for Diageo products remains strong globally, even in China. Diageo is well-placed to cope with inflation.

• With shares at 3,848.5p, we expect a total return of 67% (15.8% annualized) by June 2026, in about 3.5 years. Buy.

Introduction

We review our investment case on Diageo PLC six months after our last review. The price of Diageo’s American Depository Receipts has risen nearly 10% since then, but remains 14% lower than at the start of the year. In U.K. pounds, Diageo’s share price is down 6.5% year-to-date.

We originally initiated our Buy rating on Diageo in July 2019, and shares have gained 19.5% …