The Diageo (LSE: DGE) share price just keeps falling. When I bought the FTSE 100 spirits giant in January last year, shortly after its November 2023 profit warning, I thought I’d bagged it at a bargain price. Yet this was only the start of its woes.
Diageo shares have slumped 25% over the last 12 months to 2,168p. They’re now trading at one-, three- and five-year lows. Investors watching this relentless decline might wonder, how much worse can it get?
This should be one of the most solid UK stocks of them all. A global beast with a vast range of renowned brands including Guinness, Johnnie Walker, Don Julio, Bailey’s, Tanqueray and Smirnoff.
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Can this FTSE 100 stock recover?
Yet it’s been battered by the global downturn, shifting consumer habits, foreign exchange rates and now Donald Trump’s trade tariffs. Bargain seekers have repeatedly come unstuck, just as I did.
The latest blow landed on 4 February when Diageo withdrew its medium-term guidance. The board blamed Trump’s mooted 25% tariffs on Mexican and Canadian imports, which threaten its tequila and Canadian whisky brands. Sceptics saw that as a handy excuse.
Diageo’s interim results revealed the damage, with net first-half sales down 0.6% to $10.9bn. Operating profit slumped 4.9% to $3.16bn. Adverse foreign exchange movements didn’t help. Nor did a 132-basis point decline in margins to 30.3%.
CEO Debra Crew talked up market share gains and North American momentum, particularly in Don Julio and Crown Royal. It didn’t help. Down the shares went.
Tariffs won’t help but Diageo’s stretch go beyond Trump. Younger consumers, particularly Gen Z, are prioritising wellness over spirits. The risks inherent in the group’s shift into premium products have been punished by the cost-of-living crisis. Did Diageo forget the economy is cyclical?
Like many investors, I admired Diageo’s strong global footprint but emerging markets, which drove growth for years, have been volatile. Trouble in China’s hitting a number of my portfolio holdings, including this one.
The stock looks good value today too
I’ve considered cutting my losses. Diageo now trades at a relatively cheap (by its standards) 16.4 times earnings, with a dividend yield of 3.7%. However, uncertainty over tariffs, inflation, and Gen Z makes it difficult to pinpoint a bottom.
Not everyone’s bearish. Citi reiterated its Buy rating on Diageo on 3 February and named it a core pick for 2025. It reckons the earnings downgrade cycle is over and Diageo’s trajectory is stabilising. If it’s right, today’s low valuation and attractive yield could make this a tempting entry point.
It’s not the only one who’s upbeat. The 21 analysts covering the stock have a median 12-month price target of 2,624p. That’s a potential 20% upside from here. We’ll see.
I’m reminding myself that buying out-of-favour stocks demands patience and strong nerves. I’m fortifying myself against further drops, in the hope of benefiting when the mood swings.
There’s no doubt that the moment I sell, the Diageo share price will fly. Always happens. So I’ll hang on and hope. But it’s a brave investor who considers buying it today.
