Goldman Sachs Downgrades Diageo PLC Stock to Sell, Forecasts Negative Sales Growth: InvestingPro Insights
Goldman Sachs has downgraded Diageo PLC (LON::LN) (NYSE: DEO) stock from Neutral to Sell, with a revised price target of £24.50. The firm anticipates relative underperformance due to high earnings risks, forecasting a -1% sales growth in Fiscal Year 2025 and a modest 1% growth in Fiscal Year 2026 in North America. This contrasts with consensus data from Visible Alpha, which predicts 2% and 4% growth, respectively.
The downgrade is primarily based on Diageo's heavy reliance on the success of Don Julio, which accounts for 13% of its U.S. sales. The rest of the portfolio is not performing well, with no signs of improvement in sight. Additionally, concerns regarding the sustainability of the share buyback program into Fiscal Year 2025 have been raised, as the debt to EBITDA ratio is projected to hit 3.0x, impacting financial flexibility.
Diageo is currently trading at 17 times its Calendar Year 2025 estimated Price-to-Earnings (P/E) and 12.2 times its Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA). With various financial firms adjusting their outlooks on the stock, including Citi upgrading it to Buy, there are mixed opinions on Diageo's future performance.
Investors should pay attention to key financial metrics provided by InvestingPro, such as the company's adjusted market capitalization of $73.06 billion and P/E ratio of 15.63. Monitoring metrics like gross profit margin and operating income margin can offer insights into Diageo's financial health. For more tips and guidance on investment decisions, InvestingPro offers a discount with the code PRONEWS24.
In conclusion, as an investment manager, it's essential to stay informed about developments like Goldman Sachs' downgrade of Diageo stock, as it could impact your portfolio. Understanding the reasons behind the downgrade and considering alternative perspectives from firms like Citi and Jefferies can help you make informed decisions about your investments. By utilizing tools like InvestingPro and analyzing key financial metrics, you can navigate market volatility and make strategic investment choices tailored to your financial goals.