World: Deutsche Bank lifts Diageo stock rating to hold, maintains target

On Monday, March 3, Deutsche Bank analyst Mitch Collett revised the rating on Diageo PLC, changing it from "Sell" to "Hold," while maintaining the price target at GBp20.20. According to InvestingPro data, Diageo currently trades at $108.82, with analysts' targets ranging from $100 to $144, suggesting potential upside. The stock appears undervalued based on InvestingPro's comprehensive Fair Value analysis. Collett's reassessment comes after observing the stock's significant underperformance relative to several indices since the previous downgrade on June 29, 2022. Diageo shares have seen a 42% decline, lagging behind the SXP3P by 31%, the SXXP by 55%, and the FTSE100 by 52%. InvestingPro data shows a one-year total return of -25.32%, with the stock currently trading near its 52-week low of $105.72.

The analyst pointed out that despite the underperformance, Diageo remains fundamentally one of the strongest companies in the European Staples sector, supported by its robust 60.56% gross profit margin and FAIR financial health score from InvestingPro. The decision to upgrade to "Hold" is based on the current price target indicating a modest downside potential of 6.6%. This suggests that the risks associated with the stock are now more evenly matched with its potential. Discover more insights about Diageo's financial health and growth prospects in InvestingPro's detailed research report, part of their coverage of over 1,400 US stocks.

Collett emphasized that while Diageo is well-positioned, there are still near-term risks and potential structural headwinds that investors should consider. These concerns have been a consistent theme in Deutsche Bank's analysis of the company, even as they acknowledge its strong fundamental position, reflected in the company's $60.52 billion market capitalization and stable beta of 0.35.

The unchanged price target of 2,020p reflects Deutsche Bank's assessment of Diageo's value, taking into account the recent performance and the broader market conditions. The analyst's comments indicate a cautious optimism, recognizing the quality of Diageo's business while also acknowledging the challenges it faces.

Investors and market watchers will likely monitor Diageo's stock performance closely following this rating change, as it provides insight into the bank's latest expectations for the company's financial health and market position.

In other recent news, Diageo PLC has reported solid financial results for the first half of the year, with Barclays noting a strong performance despite cautious guidance and potential tariff risks affecting key brands. Barclays has adjusted Diageo's price target to GBp26.60, maintaining an Overweight rating while predicting a 1.8% organic sales growth and a slight decline in earnings before interest and taxes for the current year. Meanwhile, Bernstein maintained an Outperform rating with a price target of GBP28.80, highlighting robust sales driven by brands like Don Julio Reposado and Guinness. Bernstein also noted the company's practical decision to withdraw medium-term guidance amid market uncertainties.

BofA Securities has slightly reduced its price target to $136 while maintaining a Buy rating, citing modest decreases in earnings projections due to impacts from Moet-Hennessy. BofA also noted Diageo's strong market position and potential for growth, despite ongoing tariff uncertainties. JPMorgan reiterated a Neutral rating with a GBp25.00 target, pointing to challenges such as a weakening US market and potential tariff risks, while emphasizing the need for Diageo to address investment impacts on returns.

Additionally, BofA maintained a Buy rating with a GBp28.00 target, dismissing recent speculations of Diageo selling its Guinness brand or its stake in Moet Hennessy. BofA highlighted Guinness's integral role in Diageo's growth and profitability, suggesting that any strategic changes involving Guinness or Moet Hennessy remain under evaluation. These developments reflect a dynamic period for Diageo, with analysts closely monitoring market conditions and strategic decisions.

03 March, 2025