Diageo | DEO | Long at $101.15Diego NYSE:DEO is the owner of alcohol brands such as Johnnie Walker, Crown Royal, Smirnoff, Baileys, Guinness, Tanqueray, Don Julio, Cîroc, and Captain Morgan. The stock has fallen significantly since 2021 due to several factors, such as: post-COVID recovery slowdown; retail/travel disruptions hurting high-margin segments; inflationary pressures raising costs for materials like glass and agave, squeezing margins; consumer downtrading to cheaper alternatives; and macroeconomic headwinds. While tariffs may prolong overall recovery, I do not think it's the end for this company by any means.
Factors likely to drive NYSE:DEO stock higher include:
Interest Rate Cuts : Expected U.S. rate cuts in 2025 could boost consumer confidence and spending, benefiting premium brands. Lower rates may also reduce debt costs, easing pressure on its debt load.
Productivity Initiatives : NYSE:DEO $2B savings program (2025-2027) aims to improve efficiency, margins, and cash flow, potentially restoring investor confidence.
Undervaluation : Trading at 17.5x forward earnings (below historical 21x), the stock may attract value investors.
From a technical analysis perspective, NYSE:DEO has been riding my "crash" simple moving average zone. While the momentum has a strong downtrend, entry into this "crash" zone typically only happens a few times before a trend reversal. But there is a good probability, that my "major crash" zone (currently in the $80s) is possible before a true reversal. Regardless, without a crystal ball, I am starting to form a position and plan to add more if the "major crash" happens with this stock.
Thus, at $101.15, NYSE:DEO is in a personal buy zone with the noted potential for a drop into the $80s due to projected earnings revisions, etc.
Targets into 2027:
$120.00 (+18.6%)
$140.00 (+38.4%)
