Diageo (LSE:DGE) shares are rebounding strongly right now. Up 12% since 1 January, it’s rising on hopes of a strong turnaround under its new management. The FTSE 100 firm’s also rising as AI-related fears see investors pile into ‘old-world’ consumer goods stocks for safety.
The question is, can Diageo shares continue their recent momentum? One especially optimistic analyst thinks so — they predict a price of £27.25 per share a year from now, which is 51% higher than current levels.
Is this a pie-in-the-sky forecast? Maybe not. Here are five reasons I think Diageo’s share price could surge over the next year.
Possible price drivers
The first thing the market will need to see is a sharp improvement in consumer spending. At the moment, the picture is mixed in the key US region as the cost-of-living crisis endures. Consumer activity is also subdued in major Asian, European and Latin American markets.
However, it’s possible that spending improves as 2026 moves on as interest rates are cut, giving shoppers more money in their pockets and stimulating economic growth.
Could this offset fears of changing consumer tastes, though, and push Diageo’s shares higher? It’s possible, and especially as scepticism over the growth rate of GLP-1 weight loss jabs increases. Though they help supress alcohol demand, rising worries over their health implications could dent uptake looking ahead.
Drinks manufacturers also have to tackle a broader change in consumer behaviours. Here I’m talking about people who are choosing to consumer lower amounts of alcohol or cutting drinks out entirely.
I’m personally not too concerned about this given Diageo’s strong record of product innovation to adapt to changing tastes. Its Guinness zero alcohol variant, for instance, is enjoying double-digit sales rates. Further successes could boost investor confidence in its ability to evolve and give its share price an extra boost.
Can Diageo shares rebound?
I’m also hopeful the FTSE firm’s new management team will continue to drive investor interest. Sir Dave Lewis took over as CEO in January, and early signs that he’s reviving sales and slashing the cost base might boost Diageo’s shares. If his previous stint as Tesco head is any guide, we could see some big things in the months to come.
The drinks giant’s low valuation certainly leaves scope for a share price recovery, in my view. At £18 per share, the stock trades on a forward price-to-earnings (P/E) ratio of 15.4 times. That’s well below the long-term average of 21.
A sharp jump in Diageo’s share price is by no means guaranteed given the tough consumer climate. With worries over overall alcohol consumption persisting too, not every analyst is as optimistic. The consensus forecast among analysts is £20.70. That suggests a 15% uplift from current levels, which — although pretty exciting — is below the 51% that our bullish broker has suggested.
But with interest rate cuts coming and a new person in charge, I’m optimistic, like that City analyst, that we could see a sharp rebound over the next year.
