DEO - Diageo dips after Jefferies moves to the sidelines with a ratings drop to Hold

2023-05-12 10:13:21 ET

Diageo plc ( NYSE: DEO ) swung 2.50% lower on the open on Friday after Jefferies cut its rating on the alcoholic beverage stocks to Hold from Buy.

Anayst Edward Mundy and team said the downgrade reflects a slower near term outlook for the key U.S. market where Jefferies forecasts just 1% organic sales growth in FY24 vs. the consensus estimate of +4.5%.

"This reflects industry growth normalization post the pandemic super cycle, risk of inventory realignment and slower macro. We see the market adjusting to a slower US growth picture given the attractive long term fundamentals."

While Diageo ( DEO ) is considered by Mundy a stronger business than where it stood in 2019 with the portfolio in a better place, risk is seen that shares just tread water as U.S. growth normalization trend plays out. Mundy pointed out that recent data indicates that growth in the U.S. continues to moderate.

Diageo ( DEO ) is not due to report half-year earnings again until late in July or early August, With its last reprot, Diageo ( DEO ) disclosed organic sales growth of 9.4%, with growth in all regions. Price/mix of 7.6 percentage points reflected a high single-digit price contribution to net sales growth, premiumisation and organic volume growth of 1.8%.

More on Diageo:

• Diageo: A Consumer Staple Winner For FCF
• More articles from Seeking Alpha analysts
• Growth metrics on Diageo
• Seeking Alpha's Quant Rating for Diageo

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