RBC Capital has reiterated an Outperform rating on Diageo PLC, maintaining a price target of GBP20.00. According to InvestingPro data cited by the analyst, Diageo is trading at $91.86 and yields 5.45% on its dividend, with estimates indicating the stock is undervalued relative to assessed Fair Value.
The investment bank suggests the likeliest route to a turnaround for the global spirits maker would involve a stronger focus on mainstream brands and a reduced emphasis on premiumization strategies. In addition, RBC recommended that Diageo take a more assertive role in driving category growth across its beverage portfolio.
RBC’s scenario assumes these strategic changes will weigh on profitability in the medium term. The firm projects an earnings before interest and taxes - EBIT - margin decline of 210 basis points by 2027. Despite that reduction in margin, RBC’s analysis concludes that Diageo should retain sufficient financial strength and would not be required to cut its dividend under the projected outcomes.
On the basis of these projections, RBC advised investors to buy the stock now to "avoid disappointment," signaling the firm sees greater upside than downside if management executes the proposed strategic adjustments.
Other recent company developments noted by the analyst community
- Bernstein SocGen Group revised its price target for Diageo to $124.00 from $127.00 while maintaining an Outperform rating.
- This target adjustment follows Diageo’s decision to sell its 65% stake in East Africa Breweries Ltd to Asahi, a transaction RBC and others expect will reduce the company’s earnings per share by approximately 1% in fiscal year 2027.
- Diageo has appointed Sir Dave Lewis as chief executive officer, effective January 1, 2026, following a global search. Lewis is noted in market commentary for his prior role as CEO of Tesco and for experience at Unilever.
Taken together, these analyst views and company moves point to a period of strategic realignment for Diageo, emphasizing leadership change and targeted portfolio adjustments. While RBC anticipates margin compression under its scenario, the firm believes the company’s balance sheet and cash flow profile will remain strong enough to support the current dividend policy.
Summary takeaways
- RBC Capital retains an Outperform rating and GBP20.00 target on Diageo.
- Analysts highlight a potential revival driven by renewed emphasis on mainstream brands and more active category management.
- Projected margin headwinds and a planned asset sale introduce near-term earnings effects, but RBC expects financial strength to be preserved.