To say that the last few years have been rough for Diageo (LSE:DGE) shares has been rough, is a bit of an understatement. The leading alcoholic beverages business has been stuck on a downward trajectory since 2022, falling by almost 60% to its lowest level since 2015.
However, as a new CEO takes over operations with a history of executing turnarounds, could Diageo now be the biggest bargain in the FTSE 100?
New management, new chapter
With Sir Dave Lewis moving into the corner office earlier this month, investors are eagerly awaiting the firm’s first trading update under his leadership. And that’s not surprising given that Lewis has built up a strong reputation over the years for fixing struggling businesses, most notably Tesco (LSE:TSCO).
When he started at the retail giant, Tesco had just reported its worst loss in the company’s history, an accounting scandal was quickly uncovered, its market share was collapsing, and customer satisfaction reached record lows.
But over the course of six years, he successfully delivered an impressive turnaround. Relationships with suppliers were restored, overheads were significantly reduced, he divested non-core loss-making assets, introduced stricter capital expenditure discipline, and rebuilt credibility with customers.
The result? Nine consecutive quarters of like-for-like sales growth positioning Tesco to thrive under his successor. And with his operational discipline maintained, Tesco has continued to flourish.
Now the hope is that he can do the same for Diageo.
The stage is set for a comeback
Alcohol consumption in general is steadily declining, driven by increased health-consciousness. That presents a very different problem for Lewis to fix compared to what Tesco had in 2014. Yet, there is still a strong bull case to be made even with this structural challenge.
Strategic asset disposals of underperforming brands could quickly raise some capital to reduce the group’s leverage and refocus operations onto its most popular brands. After all, despite all the headwinds, Guinness sales are still growing by double-digits, Johnie Walker is gaining market share, and Smirnoff is also on the rise.
Meanwhile, across its non-alcoholic offerings, 2025 saw a massive 40% expansion in organic sales with Guinness 0.0 leading the charge, indicating untapped growth opportunities in mature regions. And with alcohol consumption in emerging markets on the rise, Grand View Research has projected the global alcoholic drinks market could grow by an 8.4% annualised rate between 2025 and 2033.
Combining these levers with ongoing cost-saving initiatives and continued robust free cash flow generation, Lewis seemingly has a lot of levers he can pull.
What to watch
With Diageo shares trading at a forward price-to-earnings ratio of 10.7, even a small amount of progress could be enough to start improving investor sentiment. However, it’s important to remember that, like with Tesco, turnarounds can take years. And they’re far from guaranteed.
There is substantial execution risk surrounding this business that is only being compounded by US tariffs, product portfolio complexity, high debt, and a wholesaler inventory glut in key regions like America.
Nevertheless, I remain cautiously optimistic. And for patient contrarian investors, a buying opportunity may indeed exist. That’s why I think this stock deserves a closer look. But it’s not the only turnaround opportunity available right now.
