DGEAF - Diageo: Low Beta And Economic Moat Mean Long Upside
2024-06-01 01:04:43 ET
Summary
- Diageo's recent stock price underperformance may provide a long-term upside for patient investors.
- Diageo's Chinese and Indian subsidiaries might increase their core operating profit margin in the next 2-3 years. This is supported by premiumization and scale.
- Ongoing discount on Diageo's valuation, despite a quality asset-based portfolio. This means a buy.
Today at the Lab, we are back to comment on the spirits industry. As a reminder, Diageo plc (DEO) (DGEAF) is a diversified drinks business player and the world's largest premium spirits company. Its product portfolio includes well-known brands such as Crown Royal American whiskey, One vodka, Smirnoff, and Johnnie Walker Scotch whisky, and its premium spirits segment has an estimated global market share penetration of 30%. Since we initiated coverage, we have recognized near-term challenges ; however, we believe the company's recent stock price underperformance might provide a long-term upside for patient investors. Aside from the spirits industry, taking advantage of our global expertise, we deep-dive into United Spirits and Sichuan Swellfun. These are Diageo Indian and Chinese subsidiaries, with 55% and 63% ownership. Combined, these divisions represent 10% of the total company's sales. Both companies reported solid numbers. In addition, Diageo also owns the beer Guinness and has a 34% equity stake in Moët Hennessy....
Diageo: Low Beta And Economic Moat Mean Long Upside