Bernstein upgrades Diageo, says spirits giant can rally nearly 30%

Bernstein is getting bullish on Diageo . Analysts Trevor Stirling upgraded the Johnnie Walker and Ketel One parent to outperform from market perform. He also hiked his price target on the company’s U.S.-listed shares to $225 from $215. The new target implies upside of nearly 30% from Friday’s close. “They are well-positioned to profit from the long-term structural growth in US spirits and have great momentum in emerging markets (primarily spirits in LatAm and Asia but also in pockets of Africa). We are confident that they will hit the upper end of their long-term guidance of 5%-7% organic top-line growth, with Operating Profit growth a point ahead,” Stirling said in a Monday note. The U.S. spirits market broadly experienced exceptional growth during the Covid lockdown era, from which it has started to come down. Yet Stirling added that Diageo’s business remains ahead of its pre-pandemic earnings. Europe has grown 26% from pre-Covid levels, and Latin America is also up 72% in sales and 100% in profits. To be sure, Bernstein noted that despite the alcohol beverage maker’s strong underlying performance, the stock’s multiple has de-rated compared to competitors and the market. Further potential headwinds include a recession in Europe, normalization in the U.S. spirits market after the pandemic boom, and a CEO handoff likely in the later half of the year. However, Stirling remains optimistic about the company’s outlook. “We believe current uncertainties create a good entry point into a great LT growth story and upgrade to Outperform,” the analyst said, adding that Diageo is “one of best long-term growth stories in global staples.” Diageo’s U.S.-listed shares are down slightly year to date. However, they have dropped 14.7% in the past 12 months. –CNBC’s Michael Bloom contributed to this report.

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