Diageo's Rally Has Come To An End, Bernstein Says In Downgrade

After rising about 17 percent in the last 12 months, Diageo plc (ADR) DEO's stock is unlikely to see any further notable upside, according to Bernstein.

The Analyst

Bernstein's Trevor Stirling downgraded Diageo from Outperform to Market-Perform with a price target lifted from $145.94 to $149.96.

The Thesis

Diageo, the parent company behind alcohol brands including Ketel One vodka, Johnnie Walker whisky and Guinness beer, has outperformed the MSCI index and its peers over the past year, Stirling said in the downgrade note.

The outperformance may be justified for the following reasons, the analyst said:

Diageo managed to slow its rate of share loss in the U.S. market.

The company saw improvements in key emerging markets like China and India.

A cost-cutting program generated a strong 80-basis point organic margin expansion in the first half of 2018.

Diageo completed a large, 1.5-billion-pound share buyback program.

The strong performance implies the stock is trading at a level that's "as good as it gets," despite expectations for a significant share buyback program and the shedding of low-end brands in the U.S. market, Stirling said.

The company's Scotch and Canadian whiskey products may also face difficulties should a global trade war break out, according to Bernstein. 

Price Action

Diageo shares were trading higher by 0.13 percent off the open Friday. 

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