Diageo's reset may not be enough to overcome US concerns, UBS warns
Published: 06:41 07 Jul 2026 EDT
New Diageo PLC (LSE:DGE) boss Dave Lewis' long-awaited strategy update next month is unlikely to remove investor concerns over its biggest market, with UBS arguing expectations for a recovery in US spirits remain too optimistic.
In a preview ahead of the drinks group's capital markets day in August, the bank said investors were focused on whether management would reset profit and margin expectations for the 2027 financial year as it attempts to revive sales in North America.
Reiterating its 'neutral' rating and 1,600p price target, UBS believes the market is underestimating the scale of the challenge. It forecasts US spirits sales will fall 7% in the 2027 financial year, compared with consensus expectations for a 3% decline, leaving North American earnings about 10% below wider market forecasts.
The Swiss bank pointed out that Diageo had already begun repositioning prices to regain competitiveness, with cuts initially focused on Casamigos tequila now appearing to spread to mainstream brands including Smirnoff, Captain Morgan and Seagram's.
Even so, UBS said there were only tentative signs the strategy was slowing market share losses and argued the business remained "far from stabilising".
The bank believes weaker US performance could largely be offset by bigger cost savings and a recovery in Asia-Pacific, allowing group operating profit to remain broadly in line with consensus.
While Diageo now trades at a discount to European consumer staples, UBS said a re-rating would depend on management demonstrating a credible path back to sustainable organic sales growth of about 3.5-4%, "but that could take time."
