Let’s not beat around the bush. 2025 has proved an utterly disastrous year for Diageo (LSE:DGE) and its share price. Down 37% since 1 January, the Guinness manufacturer’s shares have pushed deeper into a long-term slump.
And a tough outlook for the alcoholic drinks market suggests more pain could be to come. Or could it? A look at the average share price forecasts of City brokers suggests a sharp recovery’s on the horizon.
Twenty two brokers currently offer ratings on the FTSE 100 company. Their average 12-month price target is £20.47 per share, up 29% from today’s £15.88.
But one especially bullish analyst thinks Diageo can reach for the stars, predicting a share price of £25.95. That represents a 63% premium to current levels. So what could supercharge Diageo shares in the new year?
Market pressures
Diageo’s price slump has come as consumers have trimmed spending on non-essentials. Alcoholic drinks never used to fall into this category. But amid growing teetotalism among Gen Z’ers, and older people also reducing what they drink, cutting out booze isn’t the chore it used to be.
Diageo’s pivot towards premium drinks in recent years hasn’t helped it in this climate either. But its woes aren’t just about people having less money in their pocket. People are also consuming less alcohol as the healthy living trend accelerates. In this respect, the boom in weight-loss jabs like Ozempic isn’t helping Diageo’s case.
Reflecting this, the business cut guidance last month after sales failed to grow last quarter. It now expects organic net sales to be “flat to slightly down” this financial year (to June 2026), reflecting pressures in the US and China.
What could drive a recovery?
But with economic conditions improving in key markets, could Diageo’s sales rev back into life? I’m quietly optimistic they can.
Critically for the company, US economic growth smashed forecasts in Q3, hitting two-year highs of 4.3%. Diageo makes roughly 40% of revenues from North American drinkers, so this could be a big deal.
Sales volumes could also benefit in the US (and further afield) if, as widely expected, central banks continue trimming interest rates.
I’m also encouraged by Diageo’s early attempts to adapt to changing consumer tastes. The rollout of Guinness 0.0 has surpassed all expectations, with sales rising by double-digit percentages last year. It’s no surprise then, that the firm’s rapidly expanding its portfolio of non-alcoholic drinks.
It’s also important to stress that drinkers in Diageo’s emerging markets aren’t turning their back on alcohol. The outlook here remains bright for drinks makers — Grand View Research expects Asia Pacific to drive average annual growth of 8.4% in the global drinks market to 2033.
Is Diageo a Buy?
Under the leadership of recovery specialist Dave Lewis, I’m optimistic we could see a turnaround take shape from next year. I expect the company’s new chief to unleash bold changes — from accelerating cost-cutting to divesting underperforming brands — that could also rekindle investor demand for Diageo shares.
The FTSE stock currently commands a price-to-earnings (P/E) ratio of 13.2 times. This is a multi-year low, and it could provide the platform for Diageo’s share price to surge if news flow begins to indeed improve.
On balance, I think it’s a top recovery stock to consider.
