Investors worry about the 3% growth in one of the company's main markets. Addressing the Recent Drop - Growth Deceleration in North AmericaĪs shown in the previous section, North America is a large chunk of the company's operating profit and sales. Assuming 7.5% EPS growth in the midterm (respective to management's guidance) and a 2025 exit P/E multiple of 20, one should expect a CAGR of 14% in the upcoming three years. During the past 10 years, its average P/E was 23.8, which reflects 18% upside in the near term. I cannot find a reasonable justification for the company's significantly lower multiple compared to its peers.ĭiageo is selling for a P/E of 20.2 on 2023 earnings, excluding share buybacks. As will be discussed below, I do not believe the reason investors got scared out of the stock after its latest earning release is material. Valuation CompanyĮven though it's the largest company in terms of total sales, Diageo's sales growth is the highest among its peers. According to Ivan Menezes, Diageo's CEO, more than 30% of Americans spent more than $50 on a bottle of alcohol in 2022, an increase of eight points compared to 2021. Between those, the premium categories are leading the growth. However, it's constantly losing share to other segments, mainly hard seltzers, wines, and spirits. As of today, beer is the largest segment in the market (~$600B). Diageo is guiding to 6% sales growth and 7.5% operating profit growth in the midterm, reflecting a gain in market share and the shift-to-spirits dynamic. The alcoholic beverages market in 2022 is estimated by Statista at $1.6T, with expected growth of 5.42% between 20. Alcoholic Beverages Market and Growth Prospects for the Company
I believe many investors who are occasional at-home drinkers have at least one bottle made by Diageo in their house, and those who go out will definitely enjoy a drink based on a Diageo-owned brand. The exposure to each of those geographies is as follows:Ĭreated by author using data from Diageo's financial reportsĭiageo is uniquely positioned in both the on-trade market (out of home) and the off-trade market (at home) thanks to its premium diversified portfolio. The company's brand portfolio is nothing short of spectacular, with names like Johnnie Walker, Guinness, Tanqueray, Baileys, Smirnoff, Captain Morgan, Crown Royal, Don Julio, Ciroc, Casamigos, Ketel One, and many more.ĭiageo's operations span worldwide, with operations in North America, Europe, Asia Pacific, Africa, Latin America, and the Caribbean. It sells scotch, whiskey, gin, vodka, rum, tequila, liqueur, wine, beer, and more. Company Introductionĭiageo operates in the alcoholic beverage industry. In my opinion, the lower growth in North America is overexaggerated and creates an appealing entry point. The company is currently undervalued based on its historical multiples and its peers. Click here to find out more »ĭiageo ( NYSE: DEO) is a strong buy because of its leadership in the fast-growing alcohol industry.
#DIAGEO WINES AND SPIRITS FREE#
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