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Goldman Sachs upgrades Diageo to 'neutral', says downside is limited
(Sharecast News) - Goldman Sachs upgraded Diageo to 'neutral' from 'sell' as it said the valuation is supportive and downside is limited. "We see limited downside risk in FY26, as new management steps-up cost saving to support best-in-class margins and stabilise earnings, albeit visibility remains low and the outlook is based on a 2H recovery," the bank said.
It also said that cost savings should support margins in FY26, although the top line needs to improve from FY27 for margin progression to continue.
"However, the step-up in free cash flow we expect is positive, reminiscent of the FY15 uptick under Deirdre Mahlan in her first stint as CFO," Goldman said.
The bank is forecasting net debt/EBITDA falling to 3.2x in FY26 from FY25's 3.4x, excluding disposals.
"Its valuation, at 15x CY26E P/E and 12x EV/EBITDA is compelling in an historical context," GS added.
Its target price for Diageo was unchanged at 2,000p.
At 0810 BST, the shares were up 1.4% at 2,055p.
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