Bernstein cuts Diageo price target to GBP27.90, maintains Outperform

On Tuesday, Bernstein analysts led by Trevor Stirling adjusted the price target for Diageo PLC (LON:DGE:LN) (NYSE:DEO), a global leader in beverage alcohol, lowering it to GBP27.90 from the previous GBP28.50. Despite the price target revision, the firm maintained its Outperform rating on the stock.

The adjustment comes after Diageo reported its third-quarter fiscal year 2025 sales, which showed strong underlying organic growth. However, the results were somewhat boosted by favorable phasing. Bernstein’s analysis pointed out that Diageo’s performance in the United States showed signs of softness during the quarter, aligning with broader market trends that suggest a spirits recovery may not be imminent.

Diageo reaffirmed its guidance for the fiscal year 2025, with an updated leverage range now expected to be between 3.3 and 3.5 times. The company has set ambitious goals, including delivering $3 billion in free cash flow per annum from fiscal year 2026 onward and achieving $500 million in cost savings over the next three years. Diageo also plans to reach a leverage ratio within the target range of 2.5 to 3.0 times by no later than fiscal year 2028, primarily through organic growth and asset disposals.

Stirling noted that these targets largely matched consensus expectations. The company’s Chief Financial Officer hinted at potential strategic moves beyond routine operations, although no specific timeline was provided.

Bernstein’s revised model takes into account the latest financial results, currency fluctuations, and adjustments to estimates based on management’s commentary. As a result, the analysts have made a slight increase of 0.1% to their forecast for Diageo’s earnings per share in USD for fiscal year 2025 and a decrease of 1.5% for fiscal year 2026. The earnings per share in GBP are expected to decrease by 0.5% for fiscal year 2025 and by 2.2% for fiscal year 2026. Consequently, this led to the reduction in the price target to GBP27.90, while reasserting the Outperform rating on Diageo shares.

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