Diageo (DEO) AI Stock Analysis

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Diageo

(NYSE:DEO)

Rating:71Outperform

Price Target:

$123.00

▲(11.87%Upside)

Diageo's overall stock score reflects its stable financial performance with strong profitability and cash flow management, counterbalanced by high leverage and stagnant revenue growth. The technical outlook is neutral, and while the valuation is reasonable, the earnings call highlighted some concerns such as declining operating profits and tariff impacts. These factors collectively contribute to a moderately positive but cautious investment outlook.

Diageo (DEO) vs. SPDR S&P 500 ETF (SPY)

Market Cap

$60.90B

Dividend Yield3.75%

Average Volume (3M)808.47K

Price to Earnings (P/E)17.0

Beta (1Y)0.59

Revenue Growth-1.21%

EPS Growth-8.89%

CountryUS

Employees30,092

SectorConsumer Defensive

Sector Strength79

IndustryBeverages - Wineries & Distilleries

Share Statistics

EPS (TTM)3.91

Shares Outstanding556,320,400

10 Day Avg. Volume746,645

30 Day Avg. Volume808,466

Financial Highlights & Ratios

PEG Ratio-1.73

Price to Book (P/B)5.61

Price to Sales (P/S)0.00

P/FCF Ratio21.23

Enterprise Value/Market CapN/A

Enterprise Value/RevenueN/A

Enterprise Value/Gross ProfitN/A

Enterprise Value/EbitdaN/A

Forecast

1Y Price Target

$140.00

Price Target Upside27.33% Upside

Rating ConsensusModerate Buy

Number of Analyst Covering2

Diageo Business Overview & Revenue Model

Company DescriptionDiageo plc, together with its subsidiaries, produces, markets, and sells alcoholic beverages. The company offers scotch, whisky, gin, vodka, rum, ready to drink products, raki, liqueur, wine, tequila, Canadian whisky, American whiskey, cachaca, and brandy, as well as beer, including cider and non-alcoholic products. It provides its products under the Johnnie Walker, Crown Royal, Bulleit and Buchanan's whiskies, Smirnoff, Cîroc and Ketel One vodkas, Casamigos, DeLeon and Don Julio tequilas, Captain Morgan, Baileys, Tanqueray, and Guinness brands. The company operates in North America, Europe, Turkey, Africa, Latin America, the Caribbean, the Asia Pacific, and internationally. The company was incorporated in 1886 and is headquartered in London, the United Kingdom.

How the Company Makes MoneyDiageo generates revenue primarily through the manufacturing, marketing, and selling of its diverse portfolio of alcoholic beverages. The company's key revenue streams include the sale of spirits, beer, and wine, with spirits accounting for the majority of its income. Diageo leverages its extensive distribution network to reach consumers via retail outlets, bars, and restaurants globally. The company also benefits from strategic partnerships and acquisitions that enhance its brand portfolio and expand its market reach. Premiumization, or the focus on selling higher-end products, is a significant factor in Diageo's earnings strategy, allowing the company to achieve higher margins. Additionally, Diageo invests in brand marketing and innovation to sustain consumer interest and adapt to changing market trends, contributing to its financial performance.

Diageo Earnings Call Summary

Earnings Call Date:Feb 04, 2025

(Q2-2025)

% Change Since: -4.57%|

Next Earnings Date:Aug 05, 2025

Earnings Call Sentiment Neutral

The earnings call highlighted a return to growth in organic net sales and market share gains in key regions. Strong performances in Tequila and Guinness, along with strategic investments, were positive aspects. However, the decline in operating profit, the impact of tariffs, and challenges in the Scotch category presented significant concerns. The uncertainty around tariffs and higher debt levels add complexity to the outlook.

Q2-2025 Updates

Positive Updates

Return to Growth in Organic Net Sales

Despite a challenging macro environment, organic net sales grew by 1% with growth in four out of five regions, including North America.

Market Share Gains

Held or gained market share in 65% of net sales in measured markets, with strong performances in the U.S., Europe, and Greater China.

Tequila and Guinness Strong Performance

Tequila organic net sales were up 21%, led by Don Julio. Guinness achieved its 8th consecutive half of double-digit growth, with 17% organic net sales growth.

Strong Free Cash Flow

Free cash flow increased by $125 million to approximately $1.7 billion, driven by working capital management.

Digital and Route-to-Market Investments

Strategic investments in digital and route-to-market are progressing well, expected to drive future outperformance.

Negative Updates

Operating Profit Decline

Organic operating profit declined by 1.2%, impacted by increased overheads including staff costs and strategic investments.

Impact of Tariffs

The introduction of 25% tariffs on goods imported into the U.S. from Canada and Mexico creates additional uncertainty and could impact future growth.

Scotch Sales Decline

Scotch organic net sales declined by 5% due to softer industry performance in North America and Greater China.

EPS Decline

Pre-exceptional EPS declined about 10% primarily due to performance of non-controlling interests and unfavorable foreign exchange.

Higher Average Net Debt

Average net debt increased to $21.7 billion, with a leverage ratio of 3.1x, above the target range.

Company Guidance

In the recent call, Diageo shared a promising outlook despite ongoing macroeconomic challenges and geopolitical uncertainties, particularly in the U.S. due to new tariff announcements. The company reported a 1% growth in organic net sales in the first half of fiscal 2025, with market share gains in 65% of its net sales in measured markets. Notably, North America showed slight but meaningful sequential improvement, driven by strong performances from brands like Don Julio and Crown Royal. The company's operating profit declined by 1.2%, attributed to increased overhead costs, but saw a $125 million increase in free cash flow to approximately $1.7 billion. Diageo emphasized its focus on sustainable top-line growth, operating leverage, and maximizing free cash flow, while acknowledging the need to address its leverage ratio, which increased to 3.1x. Looking ahead, the company plans strategic investments and operational adjustments to navigate the evolving tariff situation while maintaining a commitment to shareholder returns through dividends and buybacks.

Diageo Financial Statement Overview

Summary

Diageo's financial performance is solid with strong profitability margins and effective cash flow management. The income statement shows stable gross and net profit margins, but revenue growth is slightly negative, which is an area of concern. The balance sheet suggests a high reliance on debt, which poses potential risks. Cash flow is robust, highlighting effective cash generation and conversion from income.

Income Statement

Positive

Diageo's income statement reflects a stable financial performance with a strong gross profit margin of approximately 60.2% and a net profit margin of 19.1% for the most recent year. However, revenue growth has been somewhat stagnant between 2023 and 2024, with a slight decline of 1.4%. The EBIT and EBITDA margins are healthy at 32.6% and 35.1% respectively, showcasing good operating efficiency.

Balance Sheet

Positive

The balance sheet indicates a moderate debt-to-equity ratio of 2.14, suggesting a reliance on debt financing, which could pose risks if not managed prudently. The return on equity is robust at 38.6%, indicating strong profitability from shareholder investments. The equity ratio is moderate at 22.1%, reflecting balanced leverage.

Cash Flow

Positive

The cash flow statement shows a positive free cash flow and a growth rate of 16.7% from the previous year, highlighting effective cash generation. The operating cash flow to net income ratio stands at 1.06, reflecting solid cash conversion from profits. The free cash flow to net income ratio is 0.67, indicating a satisfactory conversion of income into free cash flow.

TTM	Jun 2024	Jun 2023	Jun 2022	Jun 2021	Jun 2020
Breakdown
Income Statement		Total Revenue
16.06B	16.10B	17.11B	15.45B	12.73B	11.75B
	Gross Profit
9.76B	9.74B	10.21B	9.48B	7.70B	7.10B
	EBIT
5.72B	6.00B	4.63B	4.41B	3.73B	2.14B
	EBITDA
5.22B	5.41B	5.63B	4.93B	4.20B	4.48B
	Net Income Common Stockholders
3.65B	3.87B	4.45B	3.94B	2.66B	1.73B
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
1.32B	1.49B	1.79B	2.54B	2.87B	3.40B
	Total Assets
37.50B	45.47B	35.62B	36.52B	31.95B	33.31B
	Total Debt
18.05B	18.62B	16.50B	16.02B	14.73B	16.79B
	Net Debt
16.72B	17.49B	15.06B	13.73B	11.98B	13.46B
	Total Liabilities
27.59B	33.40B	26.33B	27.00B	23.52B	24.87B
	Stockholders Equity
8.21B	7.94B	7.82B	7.80B	6.90B	6.77B
Cash Flow		Free Cash Flow
2.17B	2.06B	1.84B	2.84B	3.03B	1.62B
	Operating Cash Flow
3.41B	3.26B	3.02B	3.94B	3.65B	2.32B
	Investing Cash Flow
-1.37B	-1.44B	-1.20B	-1.34B	-1.09B	-805.00M
	Financing Cash Flow
-2.00B	-2.46B	-2.41B	-3.26B	-2.79B	1.04B

Diageo Technical Analysis

Technical Analysis Sentiment

Negative

Last Price109.95

Price Trends

50DMA

109.78

Positive

100DMA

111.59

Negative

200DMA

119.09

Negative

Market Momentum

MACD

0.28

Positive

RSI

43.02

Neutral

STOCH

16.39

Positive

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For DEO, the sentiment is Negative. The current price of 109.95 is below the 20-day moving average (MA) of 113.20, above the 50-day MA of 109.78, and below the 200-day MA of 119.09, indicating a neutral trend. The MACD of 0.28 indicates Positive momentum. The RSI at 43.02 is Neutral, neither overbought nor oversold. The STOCH value of 16.39 is Positive, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for DEO.

Diageo Risk Analysis

Diageo disclosed 21 risk factors in its most recent earnings report. Diageo reported the most risks in the “Legal & Regulatory” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Diageo Peers Comparison

Overall Rating

UnderperformOutperform

Sector (65)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
BUD	79 Outperform	$139.11B	24.01	7.31%	0.93%	0.64%	10.02%
DEO	71 Outperform	$60.90B	16.98	35.83%	3.75%	-1.21%	-8.89%
BF.A	71 Outperform	$16.30B	16.42	27.99%	2.63%	-5.11%	3.64%
BF.B	71 Outperform	$16.03B	16.23	27.99%	2.62%	-5.11%	3.64%
TAP	68 Neutral	$10.96B	10.90	7.90%	3.31%	-5.17%	-0.74%
Sector *	65 Neutral	$8.84B	14.90	4.69%	203.33%	3.49%	-1.84%
STZ	63 Neutral	$32.83B	49.10	-0.98%	2.20%	2.47%	-105.09%

* Consumer Defensive Sector Average

Performance Comparison

DEO

Diageo

109.95

-17.13

-13.48%

BUD

Anheuser-Busch Inbev Sa

70.17

8.62

14.00%

BF.A

Brown Forman A

34.34

-9.38

-21.45%

STZ

Constellation Brands

185.91

-53.26

-22.27%

TAP

Molson Coors

54.19

2.81

5.47%

BF.B

Brown-Forman B

34.56

-8.74

-20.18%

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.