Upgrade Overview

TD Securities upgraded Diageo plc’s rating from “hold” to “buy” and increased its price target for the London‑listed shares to 1,750 pence, up from 1,650 pence. For the American Depositary Receipt (ADR) the target was raised to $93 from $88.

Valuation Rationale

The broker said the upgrade is driven by a valuation dislocation, applying a 14‑times multiple to the firm’s forward 12‑month earnings‑per‑share estimate. This multiple represents a 5.1 % discount to Diageo’s five‑year average forward price‑to‑earnings multiple of 19.1 times.

Financial Forecasts

Diageo reported fiscal 2025 net sales of $20.25 billion. The company projects revenue of $19.74 billion for fiscal 2026 and $19.53 billion for fiscal 2027. TD Securities maintains its fiscal 2026 organic‑sales‑growth estimate at –2.0 %, matching consensus and at the top of Diageo’s guidance range of –2 % to –3 %. The broker’s fiscal 2026 earnings‑per‑share estimate remains at $1.62, versus a consensus of $1.61. For fiscal 2027, organic‑sales‑growth is forecast at +1.7 %, above the consensus of +1.5 %.

U.S. Market Position

The report notes Diageo’s lack of competitiveness in the United States, with NABCA market share falling from a peak of 18.8 % to 17.7 % over the six months ending April 2026, and experiencing ten consecutive months of year‑over‑year share declines.

Strategic Initiatives

Under newly appointed North America head John O’Keeffe, a veteran with more than 30 years at the company, Diageo is overhauling the price architecture of its flagship tequila brands—Casamigos, Don Julio and Astral—and conducting a broader portfolio and route‑to‑market review. CEO Dave Lewis, who assumed the role on 1 January 2026 after leading a multi‑year turnaround at Tesco, is expected to continue CEO‑led cost cuts and reinvestment to restore growth and improve commercial execution.

Upcoming Catalyst

A strategy update is scheduled for 6 August, to be released alongside the fiscal 2026 results. TD Securities views this as Lewis’s first opportunity to outline his strategic vision and expects the company to target low‑single‑digit organic‑sales growth and mid‑to‑high‑single‑digit organic operating‑profit growth over the long term.