I’ve been watching the Diageo (LSE: DGE) share price closely since it crashed in November 2023, and it’s made pretty painful viewing. It’s plunged 50% in five years and continues to struggle, sliding 16.5% over the last 12 months.
Lately, it’s shown the odd splash of life. Diageo shares are up 9% over the last six months, but that doesn’t make up for all the agony.
Diageo was once one of the nation’s favourite FTSE 100 shares. It owns some of the world’s greatest drinks brands, from Guinness and Johnnie Walker to Smirnoff and Captain Morgan. Yet it’s struggled as consumers cut back on spirits, with the cost-of-living crisis squeezing wallets from Albuquerque to Zaragoza.
Can this FTSE 100 stock sparkle again?
After years of struggle, Diageo drafted in Tesco turnaround hero Sir Dave Lewis who joined in January. He began by slashing the dividend in half, arguing that Diageo needed greater financial flexibility. I’m sure it does, but it was another punch in the face for investors like me. The trailing yield is now just 2.1%. So can Dave Lewis turn things around?
I’ve reviewed Diageo shares regularly so decided to take a different tack and ask ChatGPT. My question: can Diageo shares could soar 50% over the next year. Nobody can predict share prices, including AI, but I wanted to see if it could spot something I’d missed.
ChatGPT said there are reasons for optimism. It said Lewis is already making his mark, launching a $1bn cost-saving programme and promising to reinvest in growth areas including Guinness and canned cocktails.
Sales and profits are still falling
That makes sense. Younger consumers are drinking less, particularly traditional spirits, but they’re not necessarily giving up alcohol altogether. “Ready-to-drink canned cocktails are growing rapidly in the US, offering Diageo a route into changing tastes,” ChatGPT said.
Lewis has a lot to fix though. Full-year results (6 August) showed organic sales falling 2% and reported operating profit plunging 27% as North America struggles. Diageo still carries $20.5bn of net debt.
Donald Trump has just imposed 50% tariffs on certain Canadian goods, including alcoholic drinks. That will hit Diageo’s Canadian whisky brands Crown RoyalandCanadian Club.
So can this drinks giant soar?
ChatGPT’s conclusion? “A 50% gain is possible, but not the most likely outcome.” It’s a bit vague, inevitably, but hard to argue with. Diageo shares look better value today, with a price-to-earnings ratio of 14.3, but it’ll be a big job turning this crate around.
