Diageo Update Reassures Investors

An update from Diageo's head of North America shows the turnaround in this region is on track, say Morningstar equity analysts

Philip Gorham 30 November, 2017 | 10:29AM

Guinness

Morningstar equity analysts are reiterating the £24 a share fair value estimate for Diageo (DGE) following an update to investors from Deirdre Mahlan, President of Diageo North America. The market has reacted positively – most likely, in our view, in response to bullish commentary about short-term trends – but we think the uptick in brand investments in some key parts of the portfolio supports our thesis that customer acquisition costs are likely to be somewhat inflationary in the medium term.

Unlike some peers in more commoditised categories, Diageo's pricing power, the source of its wide economic moat – or strong competitive advantage –  should help to offset these cost pressures, but we believe that after an impressive rerating over the past 18 months, the shares are slightly overvalued at their current level near £26 a share.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Diageo PLC2,575.00 GBX-1.83

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Philip Gorham  

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