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Over the past few years, calculating any returns on Diageo (LSE: DGE) shares has usually led to disappointment. But for the first time in ages, the stock has enjoyed a rare period of growth.
The shares are up 13% in the past three months. On 7 April, they were trading around 1,387p each — now, they’re worth over 1,564p.
That means a £5,000 investment just three months back would be worth £5,650 now. And that’s not even including any dividends locked in during the period.
That’s a big jump for a stock that’s been in steady decline for over five years. So is it back on track — or is this just a short-term bounce?
What brokers are saying
Earlier this year, Berkshire Hathaway famously sold its position in Diageo for an estimated 50% loss. Did the major US investment firm, led by Warren Buffett until his recent retirement, sell too soon?
Several brokers seem to think so. A few weeks ago, both Berenberg and Deutsche Bank reiterated a Buy rating on the stock, with price targets of 2,223p and 1,759p respectively. RBC Capital also has a Buy rating open on the stock with a 2,000p target.
Looking at other ratings across the board, the overall consensus seems to lean towards a Strong Buy. A few average forecasts I’ve seen range between 1,876p and 1,945p — implying an expected 20%-25% gain in the coming 12 months.
That doesn’t sound like a small bounce to me. But what is Diageo doing to ensure those forecasts become a reality?
Turnaround strategy
Diageo’s turnaround strategy under new CEO Sir Dave Lewis seems to be well underway. It started with a dividend cut earlier this year, which hurt, but was clearly the right move. In its Q3 trading statement for the nine months to 31 March 2026, organic sales were down 1.9%.
That’s slightly better than management’s FY26 guidance of a 2%-3% loss, so maybe things are already improving. But while Europe and Latin America are improving, consistent losses in key North American markets are what’s killing Diageo. If it can’t reverse that trend, a sustained recovery could be difficult.
Here’s a quick summary of its results and guidance:
- FY26 guidance: organic sales down 2%-3%, operating profit flat to low single-digit growth.
- Q3 FY26: organic net sales down 1.9%, North America down high single-digit.
- Cost savings: ‘Accelerate’ programme on track for about $300m in FY26.
Despite the dividend cut, the 4% yield is still attractive. Combined with an estimated forward price-to-earnings (P/E) ratio of just 13, and the income and value appeal is clear.
What’s the long-term outlook?
Diageo is not alone. US-based companies like Constellation Brands, Boston Beer, and Molson Coors have all lost between 20% and 40% in the past two years. Higher living costs combined with a fall in drinking rates are key reasons.
But this has happened in prior decades, and in each instance, discretionary spending eventually improved.
So yes, it could be a long wait but it’s still worth considering. With a strong turnaround strategy already in process, I think the low-priced shares could handsomely reward patient investors.
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Mark Hartley owns shares in Diageo.
This story originally appeared on Motley Fool
