I’ve had a few disappointments this year and the Diageo (LSE: DGE) share price is definitely up there.
Shares in the FTSE 100 spirits maker have plunged 15.41% over the last 12 months. Over two years, they’re down 35.96%. I expected better.
Despite recent woes, Diageo is still the 11th biggest British company with a market cap of £53.69bn. It sells more than 200 brands in over 180 countries, including top names such as Baileys, Johnnie Walker, Smirnoff and Tanqueray.
Can shares in this former FTSE 100 darling recover?
It also owns what I recently saw described as the coolest drink in the world, namely Guinness. Its alcohol-free 0,0 version is turning out to be a stormer.
Yet the shares have failed to bounce back from the profit warning, issued on 10 November 2023, as sales slumped in its Latin America & the Caribbean operation. Diageo has a heavy focus on the premium end of the drinks market, but as the cost-of-living crisis hit home, drinkers traded down. Inventory issues didn’t help.
I bought the shares at what I hoped was a bargain price two weeks later on 24 November but I’m also down 15%. That’s despite an upbeat trading statement on 26 September when CEO Debra Crew said Diageo was still trading in line with expectations, but markets remained “challenging”.
Latin America isn’t the only problem. Drinkers in China, Europe, the UK and the US aren’t feeling flush these days. Then there’s the long-term worry as Gen Z makes a big deal of drinking less, or not drinking at all.
This makes Guinness 0,0 even more important although I’m not sure Diageo can turn other brands into alcohol-free winners. Tanqueray 0,0 makes a pleasant mocktail, I’m told, but there’s something lacking. I wonder what that could be?
I’m expecting a tricky 2025 too
The 16 analysts who set one-year targets have a median share price forecast of 2,798.5p. That’s 15.91% higher than today but there’s a wide range of share price forecasts in there, from a low of 2,103.5p to a high of 3,335.5p.
Six brokers label Diageo shares a Strong Buy, four a Strong Sell. Seven say Hold. It’s hardly a ringing endorsement.
The big question is whether the premium drinks market can recover, because that’s where Diageo has placed itself. Perhaps Donald Trump’s presidential landslide can help, if conspicuous consumption makes a revival as drinkers want to show they’re winners too. Trump’s import tariffs might hurt though.
And they’re not the only duties we have to worry about with China threatening anti-dumping tariffs on imported brandy from Europe.
My glass is half empty here. I refuse to get excited over rumours of an activist-inspired break-up of the group, a takeover bid or Guinness flotation.
The stock looks okay value trading at 17.44 times earnings while yielding 3.28%. I won’t sell but I won’t average down either. To answer my own question, I’m not expecting a stellar comeback next year. 2025 could be another dry spell for Diageo.
