Diageo (LSE: DGE) shares have experienced an unbelievable price fall over the last few years. Currently, they’re trading about 55% below their highs. Could they be the ultimate turnaround investment for 2026? Let’s discuss.
Diageo’s problems
As we start 2026, the outlook for Diageo looks pretty grim. For a start, drinking habits are changing rapidly. Today, younger generations are drinking less alcohol because they’re more health conscious.
Meanwhile, GLP-1 weight-loss drugs are lowering demand among older generations as these tend to reduce cravings (around 40%-45% of GLP-1 users who regularly consume alcohol report a decrease in their consumption after starting the medication). So the company’s facing some long-term structural challenges.
We then have general consumer weakness. Consumers today have less disposable income, meaning they don’t have as much cash to spend on premium brands such as Johnnie Walker, Tanqueray, and Bulleit.
It’s worth noting that global Scotch whisky sales fell 3% in the first half of 2025, according to alcohol data provider IWSR. This marked the third consecutive year of decline after decades of growth. Given the drop in sales, Diageo’s scaled back or halted production at some of its distilleries to balance supply and demand. This is obviously not ideal.
The company’s also facing a hit from US tariffs. These could take a large chunk out of its operating profits in the near term. Finally, the company has a substantial pile of debt on its balance sheet. So interest payments are going to be a financial burden.
Can the new CEO fix things?
Now, the good news is that Diageo has a new CEO, Dave Lewis. And he’s known for being a bit of a turnaround specialist (he turned Tesco round after a period of poor performance).
There are plenty of things he could do to improve performance and boost the share price in 2026. For example:
- Sell off some brands or reduce the dividend to pay down debt.
- Cut costs (increase supply chain efficiency, enhance marketing discipline, automate operations with AI etc) to mitigate the impact of US tariffs.
- Focus more on zero-alcohol beverages to appeal to younger generations.
- Sort out all the inventory issues that have been plaguing the company.
- Enhance pricing and bottle sizes to keep brands accessible.
It’s worth pointing out that lower interest rates (especially in the US) in 2026 could help his efforts. These could free up disposable income for consumers and lead to more cash going towards premium brands.
If Lewis can show progress, there’s certainly scope for a share price bounce. Currently, the shares trade on a forward-looking price-to-earnings (P/E) ratio of just 12.5 using next financial year’s earnings forecast – a very low valuation for a company of Diageo’s ilk.
Worth a look?
Of course, there are no guarantees Lewis will be able to sort things out in the near term. He essentially needs to turn around a tanker.
I think the shares are worth a look while they’re near £16 though. In my view, there’s a good chance of a rebound at some point.
