Diageo upgraded as focus shifts back to the mainstream
Published: 06:45 06 Jan 2026 EST
Diageo PLC (LSE:DGE) was upgraded on Tuesday after analysts argued the drinks group is finally confronting the strategic choices needed to revive growth, even if that means sacrificing some margin along the way.
RBC Capital Markets lifted its rating to 'outperform', saying Diageo’s future recovery hinges on re-energising its mainstream brands rather than leaning so heavily on premium and luxury spirits.
The broker believes that approach plays to the strengths of incoming chief executive Sir Dave Lewis, whose career has been built on managing large, mass-market consumer businesses.
The analysts were blunt in their assessment of past strategy. Diageo’s long-held belief that premiumisation would reliably drive growth has, in their view, left volumes stagnating as consumers push back against higher prices.
RBC expects management to respond by sharpening prices across core brands to restore competitiveness, accepting that margins are likely to fall by about 200 basis points in the short term.
That reset would not be painless. Lower pricing would weigh on earnings initially, and RBC now forecasts earnings per share to dip before recovering.
However, the bank argues the impact on cash flow should be limited, helped by a rundown in excess maturing inventory and a pullback in capital expenditure after years of expansion built on overly optimistic growth assumptions.
Crucially, Diageo’s breadth of brands gives it room to manoeuvre. From Johnnie Walker and Smirnoff to Guinness and Captain Morgan, the group spans multiple price points, which RBC believes positions it well to reconnect with cost-conscious consumers without undermining its premium credentials entirely.
The broker also suggested that portfolio simplification could strengthen the balance sheet over time, including a potential disposal of Diageo’s stake in Moët Hennessy, though this is not factored into forecasts.
RBC left its price target unchanged at £20, arguing that greater visibility and a clearer strategic direction could still justify a re-rating, even on lower near-term earnings.
The market appeared cautiously encouraged by the shift in tone, with the shares up 1% at 1,648p.
