Citi keeps bullish on Diageo stock as destocking pressures ease By Investing.com

On Wednesday, Citi maintained its Buy rating on Diageo PLC (LON::LN) (NYSE: DEO) stock, while reducing the price target from GBP30.00 to GBP29.00. The adjustment follows the firm’s analysis of Diageo’s fiscal year 2024 results, which Citi believes have provided a clear picture for investors, particularly those with long-term interests, to reconnect with the company’s growth prospects.

The analyst from Citi indicated that while management’s cautious outlook on consumer demand led to a slight decrease in the forecast for organic growth in fiscal year 2025, the easing of destocking pressures positions Diageo favorably for future consumer demand. The expectation is that this revision in the price target may be the last downward adjustment for the spirits company.

Diageo, known for its portfolio of beverage alcohol brands, is seen by Citi as well positioned to experience an uptick in organic growth, especially in the second half of fiscal year 2025, as it moves past the period impacted by lower stock levels. This anticipated growth is underpinned by the company’s solid fundamentals and the potential for an increase in consumer spending.

In the statement, the analyst underscored the belief that Diageo’s earnings and valuation metrics are at a low point, with a rebound likely on the horizon. This perspective is based on the company’s ability to capitalize on a shift in consumer demand when it occurs.

Citi’s revised price target of GBP29.00 reflects a modest adjustment, but the firm’s outlook on Diageo remains optimistic, encouraging investors to consider the stock’s potential for mid-term growth. Despite the current cautious stance on consumer spending, Citi suggests that Diageo’s story of compounding growth remains compelling.

In other recent news, Diageo is facing a challenging environment as it approaches its full-year 2024 earnings report, with weak consumer demand for spirits in North America and sluggish sales in China.

Despite these challenges, Citi reaffirmed its Buy rating on Diageo, anticipating a shift towards medium-term growth following the earnings report. However, Goldman Sachs downgraded Diageo’s stock from Neutral to Sell, citing high earnings risks and potential underperformance.

The company has also been the subject of other financial analyses. Deutsche Bank and UBS lowered their targets for Diageo shares, citing weak sales growth in the U.S. and other market challenges. Meanwhile, CFRA maintained a hold rating on the stock but cut its price target for Diageo, updating its earnings per share estimates for the fiscal years 2024 and 2025.

These are recent developments, and investors are closely monitoring the situation. The market will be watching closely to see if Diageo can navigate these challenges and begin to realize the growth potential that Citi has identified. It is worth noting that the analysts’ analysis is mainly for understanding, but the firm names have been subtly mentioned for reference.

InvestingPro Insights

Following Citi’s maintained Buy rating on Diageo PLC, current metrics from InvestingPro paint a detailed financial picture of the company. The market capitalization stands at a robust $70.03 billion, with a trailing P/E ratio of 18.31, signaling a potentially attractive valuation for investors. Adjusted figures for the last twelve months as of Q4 2024 indicate a slightly lower P/E ratio of 17.8. This suggests a slight improvement in earnings relative to the company’s share price.

Diageo’s revenue growth is noteworthy, with an 18.44% increase over the last twelve months as of Q4 2024, and an even more impressive quarterly surge of 20.98% in Q4 2024. This aligns with Citi’s view of the company’s favorable positioning for future consumer demand. The gross profit margin stands at a healthy 60.18%, reflecting Diageo’s strong operational efficiency.

For those considering an investment in Diageo, PRONEWS24 offers a discount on a yearly Pro and a yearly or biyearly Pro+ subscription to InvestingPro, where subscribers can find additional InvestingPro Tips. Currently, there are 25 more tips available, which can provide deeper insights into making a well-informed investment decision.

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