Stock of the Day

September 1, 2021

Diageo (DEO)

$95.15
+$1.19 (+1.3%)
Market Cap: $52.99B

About Diageo

Diageo plc, together with its subsidiaries, engages in the production, marketing, and sale of alcoholic beverages. The company offers scotch, gin, vodka, rum, raki, liqueur, wine, tequila, Chinese white spirits, cachaça, and brandy, as well as beer, including cider and flavored malt beverages. It also provides Chinese, Canadian, Irish, American, and Indian-Made Foreign Liquor whiskies, as well as flavored malt beverages, ready to drink, and non-alcoholic products. The company provides its products under the Johnnie Walker, Crown Royal, J&B, Buchanan's, Smirnoff, Cîroc, Ketel One, Captain Morgan, Baileys, Don Julio, Casamigos, Tanqueray, Guinness, Shui Jing Fang, Yenì, McDowell's, Don Papa, Aviation American, Seagram, Seagram's 7 Crown, Zacapa, Black Dog, Black & White, Signature, Royal Challenge, Godawan, Antiquity, Gordon's, Old Parr, Windsor, Bundaberg, Ypióca, Bulleit, and Bell's brand names. It operates in the United States, the United Kingdom, Türkiye, Australia, Korea, India, Greater China, Brazil, Mexico, South Africa, Nigeria, and internationally. The company was incorporated in 1886 and is headquartered in London, the United Kingdom.

Diageo Bull Case

Here are some ways that investors could benefit from investing in Diageo plc:

  • Diageo plc shares are currently trading at $88.73, which is significantly below the consensus price target of $105.33 set by analysts, suggesting potential for substantial upside if the stock reverts to its mean valuation.
  • Zacks Research recently upgraded Diageo from a "hold" to a "strong-buy" rating, indicating that analysts believe the company's fundamentals have improved enough to warrant a more aggressive investment stance.
  • The company offers a dividend yield of 1.75%, with a recent declaration of $1.20 per share to be paid in December, providing a steady income stream for investors who prioritize cash flow over pure capital appreciation.
  • Diageo has a low beta of 0.57, meaning its stock price tends to be less volatile than the overall market, which can make it a defensive holding for investors looking to reduce portfolio risk during periods of market uncertainty.
  • Short interest has decreased month-over-month, with the percentage of float shorted dropping to 0.58%, which can signal that bearish sentiment is fading and that there may be less selling pressure on the stock in the near term.

Diageo Bear Case

Investors should be bearish about investing in Diageo plc for these reasons:

  • Diageo workers have extended strikes as job cuts loom, which could disrupt operations and increase labor costs, potentially impacting the company's profitability and brand reputation in the short term.
  • The company is undergoing a global restructure that includes culling its breakthrough innovation team, which may raise concerns about its long-term ability to adapt to changing consumer preferences and maintain its competitive edge in the spirits market.
  • Diageo has a debt-to-equity ratio of 1.53, indicating a relatively high level of leverage, which could limit its financial flexibility and increase its vulnerability to rising interest rates or economic downturns.
  • The stock is trading near its 52-week low of $72.45, having recently hit a 52-week low of $72.77 in March, which suggests that the stock has been under significant downward pressure and may continue to face headwinds.
  • Some analysts, such as Weiss Ratings, have issued a "sell" rating on Diageo, reflecting a bearish view on the company's prospects and suggesting that there may be fundamental issues that are not yet fully reflected in the stock price.
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