Diageo

Is Diageo a good opportunity? The stock has raised by more than 10% since reporting the FY 2025 earnings. In this post, we apply the asymmetry test to evaluate if Diageo can be part of our portfolio

Disclaimer. Please read full disclaimer at the end of the page before reading the report. This publication is only for information and entertainment purposes. It doesn’t constitute financial advice.

The information provided in this blog is for informational purposes only and should not be considered as financial, investment, or professional advice. The valuations and analyses presented here are based on publicly available.

Index:

1. Introduction and Executive Summary

2. Part I: Company Overview

3. Part II: Competitive Landscape

4. Part III: Qualitative Analysis

5. Part IV: Financial Analysis and Valuation

6. Part V: Asymmetry Test

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Introduction and Executive Summary

Diageo is the largest player in the spirits industry, owning iconic brands such as Johnnie Walker, Don Julio, Guinness or Tanqueray.

Today, I bring you one of the leaders in the alcohol industry whose shares fell by ~50% in the last two years. This post is the last of our LVMH series, where we are covering the different industries where LVMH is present.

We will analyze if at current valuation the stock is an asymmetric opportunity. Since reporting the FY results, stock is up by ~10%.

Executive summary

Company Overview

Diageo is the largest company in the spirits market. They dominate the premium segment of many varieties like scotch and tequila.

Company owns some of the most iconic brands in the industry — Johnny Walker, Guinness, Don Julio, etc.— and is present in 180+ countries.

The largest segment is North America, accounting for more than half of the profits. In that region, the company benefitted from tailwinds from the tequila industry.

Competitive Landscape

The company faces competition from multiple competitors. There is no single competitor, as each company focuses on different markets, but the largest ones are Pernod Ricard and Bacardi.

The market is highly fragmented, but Diageo has strong market share in its niches. In stout, Guinness dominates. In premium tequila, Don Julio is the reference, and Johnny Walker is the largest brand in the scotch market.

However, the whole industry faces structural headwinds, mainly from the moderation trend and limited budgets for leisure. Volumes are structurally declining but Diageo has been able to maintain some growth in volumes of ~1% each year.

Qualitative Analysis

Branding is important, as people tend to be loyal to their favorite brands. To be successful worldwide, the company needs to be present in every bar, restaurant, and supermarket.

Pricing has been the major driver of growth, as volumes increase by a modest ~1% annually. Most of the growth from pricing came from the last years, where the company benefited from strong tailwinds of the recovery of the pandemic — with strong budgets for leisure — and the high inflationary period.

Financial Snapshot

The company’s growth has slowed down in the last two fiscal years. In July 2025, the board decided to terminate the contract of the CEO after two difficult years and a decrease in the share price of ~40-50%.

The company’s leverage has increased to ~3.5x EBITDA, while dividends were maintained.

The interim CEO — a new CEO is expected to be nominated by October — presented new strategic guidelines with increased target of cost saving program of $625 million per year.

The company trades at 16x earnings, but 23x FCF, and pays 3.8% dividend yield.

Is this an asymmetric opportunity?

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