Diageo Secure Despite Profits Warning

Analysts remain confident in Diageo despite profits warning yesterday, due to the company's secure competitive advantage and diverse revenue streams

Thomas Mullarkey, CFA 31 January, 2014 | 8:58AM
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Diageo (DGE) has built an enviable business empire. We believe the firm's unmatched portfolio of spirits, combined with its vast distribution network including thousands of dedicated sales people in the United States, would be very difficult and expensive for any competitor to duplicate and results in a wide moat (competitive advantage).

Longer term, the company is making investments to grow its book of business in emerging markets such as Africa, India, and China. We expect these seeds of growth will benefit investors in the long term as Diageo gains additional distribution scale in these fast-growing regions, and as the company continues to shift additional global consumers into more premium and higher-margin brands. In our opinion, these competitive advantages and growth prospects justify an earnings valuation above the market average.

Diageo is the world's largest maker of spirits, and the scale and scope of its portfolio is unmatched. Brands such as Johnnie Walker, Smirnoff, Bailey's Irish Cream, and Crown Royal are No. 1 in the world in their respective categories. Additionally, Diageo's portfolio includes other top brands such as Guinness, Tanqueray, and Captain Morgan.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Diageo PLC3,458.00 GBX-0.26Rating

About Author

Thomas Mullarkey, CFA  is an equity analyst at Morningstar.

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