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On Monday, BofA Securities maintained a Buy rating on Diageo PLC (LON:DGE:LN) (NYSE: DEO) with a steady price target of GBP28.00. The firm's analyst, Andrea Pistacchi, provided an outlook that anticipates an improvement in the company's performance. The spirits giant, currently trading at $121.38 with a market capitalization of $68.8 billion, appears undervalued according to InvestingPro analysis.
Pistacchi forecasts a +1.3% growth in organic sales and a slight -0.6% dip in organic EBIT, with a margin contraction of 60 basis points. These projections are somewhat more optimistic than the consensus, which suggests a +0.2% increase in sales and a -2.5% fall in EBIT. The company currently generates annual revenue of $20.27 billion and maintains a healthy gross profit margin of 60.5%.
Despite the predicted growth in sales and EBIT, the analyst expects Diageo's earnings per share (EPS) to suffer a 7% year-over-year decline to 100p. This anticipated decrease is attributed to unfavorable foreign exchange rates and a significant drop in the share of earnings from associates, particularly noting the weak performance of Moet Hennessy.
The upcoming half-year results will mark CFO Nik Jhangiani's first official presentation in his role, scheduled for January 30, 2025. It is anticipated that Jhangiani will clarify his financial priorities for Diageo and may provide updates on the company's mid-term growth strategy. InvestingPro subscribers can access comprehensive analysis and additional insights ahead of this crucial earnings presentation.
BofA Securities has also revised their earnings estimates for Diageo, last published on September 24. The firm has reduced EPS projections by 3-4%, primarily due to the impact of foreign exchange rates and the performance of associates. This revision places BofA Securities' estimates approximately 2% below the consensus. Despite these revisions, Diageo maintains an attractive dividend yield of 4.13% and a Fair overall financial health rating from InvestingPro.
In other recent news, Diageo, a global leader in beverage alcohol, has seen a significant shift in its business outlook. UBS upgraded Diageo's stock from Sell to Buy, setting a new price target of GBP29.20, based on the company's strong performance in the US market. This upgrade follows a 3.6% increase in Diageo's sell-out trends in the US, surpassing the overall Spirits industry.
Diageo's strong performance is credited to the sustained growth momentum behind key brands, including Don Julio and Crown Royal. BofA Securities and RBC Capital also raised their ratings, anticipating a turnaround in the company's performance and a potential shift in business strategy with new leadership.
Despite a slight decrease in organic net sales in fiscal year 2024, Diageo generated $700 million in productivity savings and a robust $2.6 billion in free cash flow. The company also increased its full-year dividend by 5%.
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