Shares in drinks firm Diageo hit three-year lows as sales stagnate
Investors in spirits giant Diageo (DGE) could probably use a stiff drink after analysts at Goldman Sachs downgraded the stock to sell and cut their target price from £31.50 to £24.50.
The shares have already lost more than 10% this year, against a 7% rise in the FTSE 100, due to concerns over sales in the US and the Caribbean and a less than resounding welcome for the new chief executive.
Despite claims by fans such as Nick Train, manager of Finsbury Growth & Income (FGT), that Diageo is ‘anything but an average company’ and its shares should trade at a premium, the uncomfortable truth is more people – in particular young people – are drinking less as a lifestyle choice.
Studies show young adults (aged 18-34) in the US are less likely to drink alcohol than was the norm a decade or two ago; also, fewer drink regularly, and Gen Z consumes about 20% less alcohol per capita than millennials did at the same age.
Spirits sales obviously took off post-Covid as people entertained themselves at home, then we had a period of ‘normalisation’, but there is no evidence to suggest consumption will return to historic levels so hopes of a re-rating may remain just that.
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