Diageo’s (LSE: DGE) share price has experienced a rebound. Since its lows of early January, it’s climbed about 18%. Is this rally the real deal? Or are we looking at a ‘dead cat bounce’ here?
The start of something big?
My gut feeling is that this is the start of a material move higher. There are several reasons I’m bullish.
One is that new CEO ‘Drastic’ Dave Lewis already seems to be making moves to improve efficiency and cut costs. According to The Financial Times, he’s planning a significant restructuring of the company’s leadership team and potentially intends to remove entire layers of management.
Nothing has been confirmed here yet, but these rumours are encouraging from an investment perspective (obviously it’s never good to hear that people may be losing their jobs). We’ll most likely find out more about Lewis’ plans tomorrow (25 February), when the company posts its half-year results for the six-month period ended 31 December 2025.
A HALO stock
Another reason I’m bullish is that the company’s relatively immune to AI disruption. It’s a classic ‘HALO’ stock (heavy assets, low chance of obsolescence).
These kinds of stocks are seeing more interest right now given the threat of AI to some industries (Anthropic can’t suddenly generate a bottle of Johnnie Walker). So I wouldn’t be surprised to see sentiment towards Diageo shares continue to improve.
Low valuation
The valuation’s another key factor. Even after the 18% share price rebound, the forward-looking price-to-earnings (P/E) ratio is under 15. That’s a low multiple for a consumer staples company with a world-class portfolio of brands. Note that Coca-Cola currently has a P/E ratio of around 25.
I’ll point out that the dividend yield also looks attractive – it’s about 4%. However, I wouldn’t bank on this as Lewis may decide to slash it to conserve costs and pay down debt.
I’m bullish on Diageo
Now, there are still plenty of risks here, of course. While the company may be immune to AI disruption, it doesn’t look immune to GLP-1 (weight-loss drugs) disruption. This is an issue to keep an eye on. It could limit revenue growth in the years ahead.
The fact that younger generations are not drinking as much could also hurt growth. That said, there’s some evidence that Gen Z consumers are starting to drink more as they get older.
Tariffs are another risk. Last week, things were looking up here after the US Supreme Court ruled that President Trump exceeded his authority to impose global tariffs. However, over the weekend, things changed when Trump signed a new proclamation to keep tariffs in place. So there’s still uncertainty here.
Overall though, I’m bullish on the shares at present. In my view, they’re worth a closer look at current levels.
But Diageo isn’t the only stock in the FTSE 100 index that looks interesting to me right now.
