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Investing.com - TD Cowen has reduced its price target on Diageo PLC (NYSE:DEO) (DGE:LN) to GBP22.75 from GBP24.50 while maintaining a Hold rating on the spirits maker. Currently trading at $108.27, InvestingPro analysis suggests the stock is undervalued, with the company maintaining a FAIR financial health score.
The adjustment follows Diageo’s second-half organic sales growth of 2.3% and earnings per share of $0.66, which fell 7% but performed modestly above consensus expectations. The company maintains strong fundamentals with $20.25B in revenue and an impressive gross profit margin of 60.72%.
TD Cowen noted that interim CEO Nik Jhangiani has shifted the company’s strategic priorities toward margin expansion, cash flow, and stronger returns on spending through the newly implemented Accelerate Program.
The strategic pivot comes in response to what the research firm described as a "weak demand backdrop for spirits" in the current market environment.
Despite projecting tepid sales growth of approximately 1.7%, Diageo expects operating profit to inflect to mid-single-digit percentage growth in fiscal year 2026, according to TD Cowen’s analysis.
In other recent news, Diageo PLC is gearing up to announce its fiscal year 2025 results, with BofA Securities projecting an organic sales growth of 1.4%. This marks an improvement from the 1.0% growth reported in the first half of the year. The company recently reported a third-quarter fiscal year 2025 organic sales growth of 5.9%, surpassing buy-side expectations. Deutsche Bank (ETR:DBKGn) noted that this growth was aided by favorable phasing, contributing about 4%, which means the underlying growth rate was approximately 2%. Despite this, Deutsche Bank revised its price target for Diageo to GBP19.60, maintaining a Hold rating. Meanwhile, BofA Securities adjusted its price target to GBP22.00 from GBP24.50 but continues to recommend a Buy rating. The firm also highlighted Diageo’s Accelerate program, which aims to save $500 million over three years and generate around £3 billion in free cash flow annually. These developments follow a Guinness Investor Event where Diageo’s executives shared insights into growth strategies and future opportunities.
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