Diageo's Strategic Divestitures and Share Price Momentum: A Turnaround Play in 2026?

Diageo, the global leader in spirits and beer, has embarked on an aggressive portfolio streamlining initiative under its "Accelerate" program, aiming to reshape its business for long-term resilience. As the company navigates a challenging macroeconomic environment and shifting consumer preferences, investors are scrutinizing whether its strategic divestitures and cost-cutting measures justify renewed optimism. This analysis evaluates Diageo's financial performance, investor sentiment, and strategic rationale to determine if the stock represents a compelling turnaround opportunity in 2026.

Portfolio Streamlining: A Strategic Shift Toward Core Assets

Diageo's recent divestitures reflect a deliberate pivot toward high-growth, high-margin brands while exiting underperforming markets. In June 2025, the company exchanged its majority stake in Cîroc vodka in North America for a global interest in Lobos 1707 Tequila, a move designed to bolster its presence in the premium tequila category. This transaction, part of the broader Accelerate program, underscores Diageo's focus on brands with strong consumer demand and scalable potential.

Further, Diageo announced the sale of its 65% stake in East Africa Breweries Ltd to Asahi, expected to close in fiscal 2027. While this divestiture will reduce earnings per share (EPS) by 1%, it aligns with the company's goal of simplifying its portfolio and reallocating capital to core markets. The Accelerate program itself targets $625 million in cost savings over three years, with a focus on operational efficiency and selective disposals to strengthen financial flexibility.

Financial Impact: Mixed Signals Amid Cost-Cutting Efforts

Diageo's fiscal 2025 results reveal a complex picture. Organic net sales grew by 5.9% year-over-year in Q3 2025, driven by price/mix improvements and volume gains in key regions like Latin America and North America . However, operating profit margins contracted by 68 basis points, reflecting ongoing investments in overhead and the drag from tariffs, which are estimated to cost $200 million annually.

The company's EPS has declined by 17% compound annually over the past three years, exacerbated by exceptional impairment charges and restructuring costs . Despite these challenges, Diageo's free cash flow reached $2.748 billion in fiscal 2025, and it aims to generate $3 billion annually starting in fiscal 2026 through cost discipline and operational efficiencies. These metrics suggest that while Diageo's profitability remains under pressure, its financial resilience is intact.

Investor Sentiment: A Cautious Optimism

Analyst ratings for Diageo's stock reflect a divided outlook. RBC Capital upgraded the stock to "Outperform" in late 2025, citing the potential for margin recovery and the strategic clarity under new CEO Sir Dave Lewis. Conversely, UBS downgraded Diageo to "Neutral," expressing concerns over the U.S. spirits market, which accounts for 30% of its sales. The consensus among 11 Wall Street analysts remains a "Hold," with an average 12-month price target of $120.67- implying a 39.62% upside from its current price of $86.43.

Morningstar analyst Verushka Shetty has labeled Diageo undervalued, assigning a fair value estimate of £24.40 compared to its current price of £18.39. This assessment is bolstered by anticipated cost savings of $625 million from the Accelerate program and a projected improvement in operating margins by 2026. However, Fitch Ratings has revised Diageo's outlook to "Negative", emphasizing the need for disciplined deleveraging to maintain its 'A-' credit rating.

Share Price Momentum: A Tale of Two Markets

Diageo's share price has been volatile, trading 55% below its 2021 peak and down 35% year-to-date in 2025. This decline is attributed to weak consumer demand in the U.S., Asia Pacific, and China, where macroeconomic pressures and shifting drinking habits have dampened sales of premium spirits . Additionally, the unexpected death of its former CEO and subsequent leadership changes have added to investor uncertainty.

Yet, the stock's low price-to-earnings ratio and a 4.73% dividend yield make it an attractive long-term proposition for income-focused investors. Analysts from Bernstein and UBS have highlighted the potential for a share price rebound if Lewis's leadership delivers tangible progress in revitalizing Diageo's mainstream business.

Future Outlook: Balancing Risks and Rewards

Diageo's turnaround hinges on its ability to execute the Accelerate program effectively. The company's focus on innovation-such as non-alcoholic spirits and premium offerings like Johnnie Walker Black Ruby- positions it to capture emerging trends. However, risks persist, including the decline in global Scotch whisky sales and the impact of U.S. tariffs on operating profits as noted in market analysis.

Looking ahead, Diageo's valuation model suggests a potential 63% growth in share price before 2030, assuming successful cost savings and margin expansion. While the path to recovery is not without hurdles, the combination of strategic clarity, financial discipline, and a compelling valuation makes Diageo a speculative but plausible turnaround play for 2026.

Conclusion

Diageo's strategic divestitures and portfolio streamlining efforts are justified by a clear operational and financial rationale. While the company faces headwinds in key markets and a challenging macroeconomic environment, its cost-cutting initiatives, focus on core brands, and undervalued stock price present a compelling case for patient investors. The success of the Accelerate program and the leadership of Sir Dave Lewis will be critical in determining whether Diageo can rekindle its growth trajectory and deliver value to shareholders in the coming years.