The British beverage company Diageo PLC (GB:DGE) recently received two Sell ratings, signaling a potential downside from current share price levels. Over the last year, the Diageo share price has experienced a downward trend. The causes behind this decline seem multifaceted and largely linked to the weakening global economy. In the last 12 months, the stock has lost around 15% of its value in trading.
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In general, analysts on TipRanks have assigned a rating of Moderate Buy to Diageo stock, with a modest upside of 18%.
Diageo is a leading manufacturer and distributor of alcoholic beverages in the world. The company boasts a diverse portfolio of approximately 200 renowned brands, such as Johnnie Walker, Baileys, Smirnoff, Tanqueray, and more.
Cautious Investor Sentiment Despite Positive Fundamentals
The company’s FY23 earnings reflected solid top-line growth and profitability, driven by its pricing strategy, which offset the lower volumes. The company delivered a growth of 10.7% in its net sales of £17.1 billion for the year. Despite this, the share price didn’t gain any significant momentum. Investors remain worried that with decelerating economic growth, consumers might opt for more affordable brands, especially in crucial markets like the U.S. (which happens to be Diageo’s largest market).
Analysts believe that the economic downturn could continue until the second half of 2024 and pose a challenge for Diageo. This, coupled with the unfortunate loss of Diageo’s CEO Ivan Menezes and the strengthening of the pound, seems to have played a role in the decline in the stock price.
Recent Ratings
In the short term, analysts hold differing opinions. Recently, two analysts have recommended selling the stock, creating negative pressure on the share price.
Three days ago, analyst Mitch Collett from Deutsche Bank reiterated his Sell rating on the stock, predicting a downside of 7% in the share price.
Four days ago, RBC Capital analyst James Edwardes Jones also confirmed his Sell rating on the stock and forecasted a 3% decline in the share price.
What is the Forecast for Diageo Shares?
According to TipRanks’ consensus, DGE stock has received a Moderate Buy rating based on a total of 15 recommendations from analysts. This includes seven Buy, five Hold, and three Sell recommendations.
The Diageo share price target is 3,770.5p, which is 18% above the current trading levels.
Conclusion
While there is undoubtedly some uncertainty at the moment, the decline in share price could be seen as an attractive entry point for long-term investment. The recent Sell ratings from analysts, along with other factors like slower growth in the U.S. and a big leadership change, might lead to an additional pullback in the stock.
