Picture supply: Getty Photos
To say that the previous few years have been tough for Diageo (LSE:DGE) shares has been tough, is a little bit of an understatement. The main alcoholic drinks enterprise has been caught on a downward trajectory since 2022, falling by nearly 60% to its lowest degree since 2015.
Nevertheless, as a brand new CEO takes over operations with a historical past of executing turnarounds, may Diageo now be the most important discount within the FTSE 100?
New administration, new chapter
With Sir Dave Lewis transferring into the nook workplace earlier this month, traders are eagerly awaiting the agency’s first buying and selling replace beneath his management. And that’s not stunning on condition that Lewis has constructed up a powerful status through the years for fixing struggling companies, most notably Tesco (LSE:TSCO).
When he began on the retail big, Tesco had simply reported its worst loss within the firm’s historical past, an accounting scandal was rapidly uncovered, its market share was collapsing, and buyer satisfaction reached file lows.
However over the course of six years, he efficiently delivered a formidable turnaround. Relationships with suppliers had been restored, overheads had been considerably lowered, he divested non-core loss-making belongings, launched stricter capital expenditure self-discipline, and rebuilt credibility with prospects.
The consequence? 9 consecutive quarters of like-for-like gross sales development positioning Tesco to thrive beneath his successor. And along with his operational self-discipline maintained, Tesco has continued to flourish.
Now the hope is that he can do the identical for Diageo.
The stage is ready for a comeback
Alcohol consumption normally is steadily declining, pushed by elevated health-consciousness. That presents a really totally different downside for Lewis to repair in comparison with what Tesco had in 2014. But, there may be nonetheless a powerful bull case to be made even with this structural problem.
Strategic asset disposals of underperforming manufacturers may rapidly increase some capital to cut back the group’s leverage and refocus operations onto its hottest manufacturers. In any case, regardless of all of the headwinds, Guinness gross sales are nonetheless rising by double-digits, Johnie Walker is gaining market share, and Smirnoff can be on the rise.
In the meantime, throughout its non-alcoholic choices, 2025 noticed a large 40% growth in natural gross sales with Guinness 0.0 main the cost, indicating untapped development alternatives in mature areas. And with alcohol consumption in rising markets on the rise, Grand View Analysis has projected the worldwide alcoholic drinks market may develop by an 8.4% annualised price between 2025 and 2033.
Combining these levers with ongoing cost-saving initiatives and continued strong free money circulate era, Lewis seemingly has loads of levers he can pull.
What to observe
With Diageo shares buying and selling at a ahead price-to-earnings ratio of 10.7, even a small quantity of progress may very well be sufficient to begin bettering investor sentiment. Nevertheless, it’s vital to do not forget that, like with Tesco, turnarounds can take years. And so they’re removed from assured.
There may be substantial execution danger surrounding this enterprise that’s solely being compounded by US tariffs, product portfolio complexity, excessive debt, and a wholesaler stock glut in key areas like America.
Nonetheless, I stay cautiously optimistic. And for affected person contrarian traders, a shopping for alternative might certainly exist. That’s why I feel this inventory deserves a more in-depth look. Nevertheless it’s not the one turnaround alternative out there proper now.
