On Monday, Jefferies adjusted its outlook on Diageo PLC (LON:DGE:LN) (NYSE: DEO), a global leader in beverage alcohol, by lowering its price target from £29.00 to £28.00 while maintaining a Hold rating on the stock. The revision reflects a more cautious stance on the company's earnings potential and market challenges, particularly in the United States.
The firm's analysis indicates that Diageo is nearing the end of a cycle of downward earnings revisions, having seen more than a 20% reduction in expected earnings per share (EPS). Jefferies has revised its forecast for the fiscal year 2024, with a slight decrease in organic sales growth projections from +0.3% to -0.2% and a more pronounced decrease in expected earnings before interest and taxes (EBIT) from -4.0% to -4.4%. The EPS estimate has been set at $1.83.
The report highlights that Diageo's growth framework, which targets 5-7% growth, remains out of reach for now. The focus for analysts and investors is on the U.S. market, where two main concerns are raised: the uncertainty of the industry's recovery to mid-single digit (MSD) growth rates and the need for Diageo's U.S. share performance to demonstrate sustained momentum.
Jefferies also provided a comparison of Diageo's calendar year 2025 estimated price-to-earnings (PE) ratio of 17.8x against the average of 17.5x for the staples sector. This comparison suggests that Diageo's valuation is slightly above the sector average, despite the current challenges and revisions to the company's financial forecasts.
In other recent news, Diageo has been the subject of a series of revised outlooks from various financial firms. Deutsche Bank has lowered its target for Diageo shares, citing weak sales growth in the US and suggesting that the company reconsider its medium-term organic revenue growth guidance of 5-7%. This comes after the firm's analysis of industry data and performance of peers indicated a more cautious stance on the markets in the US and Europe.
UBS also reduced its price target for Diageo, maintaining a Sell rating due to challenges such as prolonged weakness in the US spirits industry and downtrading in super-premium Blanco Tequila. The firm also noted deteriorating trends in China, softer markets in India and Latin America, and normalization in Europe as potential risks to Diageo's performance.
Furthermore, financial research firm CFRA has cut its price target for Diageo to $140, maintaining a Hold rating on the stock. The firm updated its earnings per share estimates for Diageo for the fiscal years 2024 and 2025, reflecting more conservative volume expectations.
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