Diageo Analysts Predict Profit Recovery Amid Market Challenges

Diageo (DEO) is poised for a potential recovery with anticipated organic operating profit growth, according to analysts. The average price target is $120.17, suggesting an 8.70% upside. GuruFocus estimates a significant upside of 35.57% based on the GF Value metric. Despite facing challenges, experts remain confident in Diageo's robust portfolio and strategic initiatives to drive profitability enhancement.

Diageo (DEO) is showing signs of recovery, with analysts optimistic about its potential for organic operating profit growth. The spirits giant has been under scrutiny for its multi-year share price slump, but recent developments suggest a turnaround is on the horizon.

Goldman Sachs recently upgraded Diageo's stock rating from "Sell" to "Neutral," citing limited downside risk in fiscal year 2026 and the potential for cost-saving measures to support margins. The investment bank expects Diageo’s net debt to EBITDA ratio to fall to 3.2x in FY26 from FY25’s 3.4x, suggesting a healthier balance sheet. Additionally, Goldman Sachs forecasts a step-up in free cash flow, comparing it to the FY15 uptick under Deirdre Mahlan’s tenure as CFO [1].

HSBC analyst Jeremy Fialko also sees upside for Diageo, noting organic sales growth similar to FY25 and mid-single-digit organic operating profit growth. Fialko highlighted Diageo's opportunity to boost profitability, with margins close to a 15-year low. The analyst expects a relatively firm bounceback in the second half of the year to meet expectations [3].

Despite these positive signals, Diageo faces challenges, including a secular decline in global alcohol demand. However, the company’s robust portfolio and strategic initiatives to drive profitability enhancement are seen as strong assets. For instance, the Accelerate program aims to achieve $500 million in savings over three years and target approximately £3 billion in free cash flow annually [1].

The average price target for Diageo is $120.17, suggesting an 8.70% upside. GuruFocus estimates a significant upside of 35.57% based on the GF Value metric. The company’s current valuation of 15x CY26E P/E and 12x EV/EBITDA is considered compelling in an historical context [1].

Institutional investors are also showing interest in Diageo. Virtu Financial LLC purchased a new stake in the company in the first quarter, acquiring 40,702 shares valued at approximately $4.27 million [2]. Other institutional investors, such as Orion Capital Management LLC and Perkins Coie Trust Co, have also recently acquired new stakes in Diageo [2].

In conclusion, while Diageo faces challenges, analysts remain optimistic about its potential for recovery. The company's strategic initiatives and robust portfolio position it well for a turnaround. Investors should closely monitor the company's progress and earnings reports for further insights.

References:
[1] https://www.investing.com/news/analyst-ratings/goldman-sachs-upgrades-diageo-stock-rating-to-neutral-on-cost-savings-93CH-4178871
[2] https://www.marketbeat.com/instant-alerts/filing-virtu-financial-llc-takes-427-million-position-in-diageo-plc-nysedeo-2025-08-10/
[3] https://seekingalpha.com/news/4484496-diageo-looks-to-turn-a-corner-after-a-multi-year-slump