Is the Diageo share price about to go gangbusters?

I’ve been watching the Diageo (LSE: DGE) share price like a hawk. But unlike some of the other FTSE 100 strugglers in my portfolio, this beaten-down stock’s still refusing to fly.

I first bought the spirits giant in 2023, a week or two after it issued a profit warning in November. Sales had slumped across Latin America and the Caribbean, as hard-up drinkers traded down to cheaper brands, made worse by excess inventory clogging up the supply chain. I paid £28 per share.

As the stock kept falling, I averaged down in August 2024 at £25.67. Today, the shares are worth £19.61. My Self-Invested Personal Pension (SIPP) account tells me I’m 30% down, not including dividends, which I’ve been reinvesting automatically.

So it goes. A few losers are part of long-term investing. I kept making the same mistake, jumping in too early after a profit warning, thinking the worst was over.

My FTSE flops

Some of my other recovery plays are finally showing promise. Ocado’s up 43% in the last month. JD Sports has jumped 21%. Glencore’s up 17%. They’re still well down over 12 months, but at least they’re moving in the right direction.

Diageo isn’t. It’s still 22% down over the past year and nearly 50% over three. It’s crept up 5% over the last week, but that’s hardly a barnstormer.

Much of that was a knee-jerk response to news that CEO Debra Crew had stepped down with immediate effect on 16 July. The positive mood didn’t last long.

Crew had taken over in June 2023 after the unexpected death of long-standing boss Ivan Menezes. She was unlucky, with the profit warning landing just months into her ill-fated tenure. Plus there are underlying worries she couldn’t do much about.

Drinking habits are shifting. Young adults are drinking less. Cost-of-living pressures have hit premium alcohol brands hard. Weight loss drugs like Ozempic and Wegovy could help people drink less, as well as eat less. Donald Trump’s tariffs added yet more uncertainty to this dizzying brew. Diageo estimates they will knock $150m off its annual operating profit.

Exciting recovery play?

There are green shoots. On 19 May, Diageo said organic net sales rose 5.9% in Q3, up from just 1% in the first half, although 4% of that was down to favourable phasing that won’t last into Q4.

Its Accelerate programme aims to unlock $500m in cost savings over three years, push free cash flow to $3bn a year and simplify operations.

But for now, doubts remain. The global economy’s still fragile, tariffs linger, and until a permanent CEO is appointed, the leadership vacuum might squeeze sentiment.

Yield’s rising

That said, the valuation looks attractive. The shares trade at around 15 times earnings, well below historical norms. The dividend yield has crept above 4%, and the total return could top 25% over the next 12 month if the stock hits analysts’ median target of 2,383p.

Twelve of the 24 analysts tracking Diageo rate it a Strong Buy. Two say Buy. Just three say Sell.

I plan to average down once more before the next results land on 5 August. If there’s good news in there, I’d rather be in before it than after. Let’s hope I’m not jumping the gun again.