At current levels, after a 21% decline year-on-year, we believe Diageo Stock (NYSE: DEO) could see higher levels. DEO’s stock has dropped from $220 in early January to now under $175. The YTD -21% move for the DEO signifies an in-line performance with a -22% return for the broader S&P500 index.
Looking longer, DEO stock is up 23% from levels seen at the end of 2018. It marks a better performance than some of its peers. Anheuser-Busch InBev Stock falling 21%, Molson Coors Beverage Stock Down 7%, but an underperformance compared to the broader markets, the S&P 500 index gained 51% over the same period.
This growth over the past three years was driven by the company’s P/E ratio, which has risen 36% to 28x currently, from 21x in 2018. This is offset by its earnings, which fell 9% to $6.15 in 2021 compared to $6.76 in 2018. , on a per share basis. The decrease in earnings was due to a 16% decline in net income margin, which more than offset by low single-digit revenue growth in the period.
Diageo’s Revenue increased by 2% to $17.2 billion in 2021 compared to $16.9 billion in 2018. Revenue fell to $14.8 billion in 2020 due to the impact of the pandemic. While demand has improved over the past few quarters, pubs and bars have reopened following the easing of Covid-19 restrictions. A growing drinker population with higher disposable incomes, and rising penetration rates, especially in emerging markets, are driving the company’s sales growth. However, recently, rising interest rates, supply chain disruptions and high inflation environment are expected to impact revenue growth for the company.
Diageo’s net income margin was 20.9% in 2021, reflecting a decline of 400 bps from 24.8% in 2018 due to higher costs. We expect net income margin to improve to 22.2% in 2022 due to better pricing and cost efficiencies. Diageo has spent $7.4 billion in share repurchases between 2018 and 2021, resulting in the share count falling from 624 million in 2021 to 586 million, and that trend is expected to continue in the coming years.
we guess Diageo’s valuation Should be $225 per share, representing a 30% increase from its current market price of $173, meaning investors can use the recent decline to enter DEO stock to profit in the long run. Our valuation represents our earnings forecast of $7.10 per share and a forward P/E ratio of 32x on an adjusted basis for full-fiscal 2022. This compares with 34x the average seen over the past three years. That said, investors should keep near-term risks in mind. DEO stock faces headwinds from the current weakness in the broader markets. The S&P500 has now entered bear market territory, with rising concerns of slow economic growth in the face of high inflation, Fed action and supply chain disruptions.
While DEO stock has room for growth, it’s helpful to see how Diageo’s partner Fare on metrics that matter. You’ll find other valuable comparisons for companies across industries here. peer comparison,
In addition, the COVID-19 crisis has created several pricing discontinuities that can provide lucrative trading opportunities. For example, you’d be surprised how intuitive it is to approach stock valuations. PepsiCo vs Williams-Sonoma
Stock prices across sectors have fallen sharply in recent months and we are now in a bear market for the first time since March 2020, when the COVID-19 outbreak triggered a market crash. We capture key trends in the Dow during and after major market crashes in our interactive dashboard analysis.market crash comparison,
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