The appointment of ex-Tesco CEO Sir Dave Lewis looks like good news for Diageo (LSE: DGE) investors who want to see their share price moving forward again.
He comes with a cracking track record behind him.
So what does he have to deal with? The following chart shows a dire five-year performance. The Diageo share price, though, is already up around 8% since the news broke.
Analysts upbeat
Analysts were already generally positive about Diageo, with a majority rating the stock a Buy. They also see a turnaround in earnings on the horizon.
The year to June 2025 was a tough one. And the first quarter of 2025/26 saw the board downgrade its full-year guidance based on Chinese and US weakness.
But forecasts suggest 2026 could be the year the profit turnaround kicks off, with earnings per share predicted to grow 75% by 2028. That still wouldn’t be back to where things were in 2023, mind.
Experts also see dividend growth getting back into swing again, after 2025 saw the payment held at the previous year’s level. The City expects a yield of around 4.2%.
New boss
Shareholders will place great expectations on the shoulders of the incoming boss. Diageo’s first-half results are due on 25 February. So that should be when we first hear his plans for shaking up the company — unless we get any special updates before then.
So what might he do? Sir Dave took a firm grip of Tesco back in 2014. Tesco had overstretched into too many businesses. And it had made some disastrous forays into the international groceries business.
But by the time he moved on in 2020, Tesco was back to what it does best. Today, it commands 28% of the UK’s groceries market, and that’s been rising — even in the face of cheapies like Aldi and Lidl.
Disposals will almost certainly feature in future Diageo plans. Even at Q1 time in November, the board was talking about “appropriate and selective disposals over the coming years“. My guess is that plan will accelerate.
What should investors do?
With a forward price-to-earnings (P/E) ratio of 14, the shares look reasonably priced to me. And if, as I hope, this year marks the pivot back to earnings growth, they could even be cheap. Existing forecasts drop the P/E to 13 by 2028. But that’s without considering what the new CEO might do.
What would I like to see? I hope Diageo will dump some poorly performing brands and focus on long-term hits. Who wants Don Papa rum, rated lowly by drinkers, when we can have big-selling Captain Morgan?
I’m hoping to see the balance sheet beefed up too. I rate $21.9bn net debt at 30 June as far from ideal, with net debt to adjusted EBITDA as high as 3.4 times.
I’ll scrutinise February’s update for sure. But even just knowing Sir Dave’s track record, I’m already considering investing.
