Can the new boss fix this FTSE 100 struggler?
The shares of this consumer stalwart are stuck near a decade low, but as a new boss prepares to set out his strategy is there light at the end of the tunnel?
18th June 2026 15:01
by Graeme Evans from interactive investor
The path to a re-rating of Diageo (LSE:DGE) shares has been outlined by a City bank after it said the turnaround ambitions of new boss Dave Lewis appeared achievable.
The former Tesco chief executive is due to give more details of his strategy for the Guinness, Don Julio and Johnnie Walker owner when he presents annual results on 6 August.
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While Bank of America believes that progress will take time, it said it may only need signs of improved execution in the key US market for shares to outperform over the next 12 months.
The bank has highlighted a price target of 1,850p, which compares with today’s near decade-low of 1,507p after a 20% fall over the past year and 60% in the past three years.
The shares trade on a multiple of 13 times forecast earnings, which represents an approximate 22% discount to European staples.
BofA said this appeared attractive: “While re-rating is likely to be gradual, we expect the shares to outperform over the next 12 months as early signs of stabilisation emerge.”
Lewis has already rebased the dividend as part of moves to bolster the balance sheet, meaning shareholders got an interim payout of 20 US cents a share on 4 June. This compared with the 40.5 cents in 2025.
Diageo offered some encouragement on trading last month when third-quarter organic sales growth of 0.3% came in better than City forecasts for a 2.3% decline.
The performance followed growth in Europe, Latin America and Africa, offset by a 9.4% decline in North America amid ongoing challenges in the US spirits market.
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Diageo reaffirmed its full-year guidance for an annual organic sales decline of between 2% and 3% and operating profit growth between flat and a low-single digit higher.
Lewis also vowed to make Diageo more competitive in the US, where third-quarter organic sales fell 15.4% amid tough comparatives with last year’s pre-tariffs activity.
Bank of America’s analysis suggests that Diageo will need $400 million (£302 million) of gross reinvestment, of which nearly $300 million is pricing related and mainly concentrated in the US.
That would be offset in the 2027 financial year by cost savings, as well as removal of scotch tariffs and underlying profit growth outside the US.
Bank of America adds that Diageo's portfolio is in better structural shape than it was seven to eight years ago, when Crown Royal, Smirnoff and Captain Morgan accounted for 50% of sales.
“That said, it requires greater focus and clearer prioritisation, some price readjustments, particularly in the US, and we see a number of gaps that may need to be addressed over time, likely through acquisitions.”
Diageo has more than 200 brands globally and over 90 in the US, which BofA said was too many for the organisation to manage effectively.
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It expects Lewis to heighten the focus of marketing investment on Diageo’s growth drivers. “In our view, brands such as Smirnoff and Captain Morgan have likely received disproportionate investment relative to their growth potential.”
The central debate for Diageo is whether the US business - and historically the key driver of sentiment - can be turned around.
The bank sees a credible path to stabilisation in the US, which should be driven by sharper execution, the targeted price adjustments and clearer portfolio prioritisation.
It adds: “We believe the US can be stabilised, although unlikely returned to growth, given our cautious view on the industry, while we expect continued solid performance outside the US.”
The bank points out that organic sales growth outside China and the US was 3% in 2025 and is set to be 5% in the current year, driven primarily by Guinness and India.
Graeme Evans owns Diageo shares.
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