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Diageo (DEO) Poised to Grow in 2017: Should You Hold?
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Leading brewer Diageo plc. (DEO - Free Report) seems to be a good choice for investors to hold onto seeking growth in 2017. In spite of the company’s declining volumes in the past few quarters and the near-term headwinds it faces, we believe that it is likely to bounce back on growth trajectory driven by its product innovation and high margin portfolio.
The shares of the company gained 5.3% in the past one year, outperforming the Zacks categorized Beverages-Alcoholic industry which has gained 4.1% during the same period. Let us delve deep and find out what is going on with the stock.
Leading Market Share in All Geographies
Diageo, a global leader in spirits, has majority market share in nearly every spirit category in Europe and the U.S., two of its largest markets.
Growing Spirits Category
Most of the companies in the spirits market like Diageo, Boston Beer Inc. (SAM - Free Report) and Molson Coors Brewing Company (TAP - Free Report) are experiencing declining volumes. However, the spirits and wine market as a whole is getting an uptick, as younger generations are also consuming more spirits. Notably, Diageo is making efforts to focus on its spirits business, as a result of which it has planned to divest non-core assets. In Nov 2016, the company sold the majority of its U.S. and British wine operations to the Australian company, Treasury Wine Estates. Earlier in July, Diageo had sold luxury hotel and golf resort, Gleneagles, located in Scotland, to a private equity firm Ennismore Capital, to cut costs and bolster profits. These moves reaffirm its plans to focus more on the core spirits business.
Innovation and Adaption to Changing Demands
Diageo is set to capture the growing market of spirits and is innovating newer varieties of spirits to entice the growing consumer base. Further, the company is penetrating fast into emerging markets with the help of acquisitions.
In order to combat the slowdown in the spirits market, the company is striving to sustain its market share by adapting to the changing demands of the consumers. As a testimony to this effort, Diageo launched the new malt flavored SMIRNOFF Spiked Sparkling Seltzer beverage with only 90 calories and zero sugar in the beginning of 2017, which provides a guilt free drinking experience to its calorie conscious consumers.
Although the Zacks Rank #3 (Hold) company maintains a leadership position in the spirits market, we notice increasing restrictions on alcohol consumption by governments worldwide have dented revenue growth.
However, the sinful nature of its products is an advantage for the stock. Alcohol Beverage sector in particular has always been alluring for investors, as these sinful stocks always yield handsome returns for the portfolio. Since people drink both during times of recession as well as economic growth, such stocks are sometimes valued at a higher premium than companies that are more sensitive to economic trends. As a result, these stocks always benefit from the addictive nature of their products.
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>
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Diageo (DEO) Poised to Grow in 2017: Should You Hold?
Leading brewer Diageo plc. (DEO - Free Report) seems to be a good choice for investors to hold onto seeking growth in 2017. In spite of the company’s declining volumes in the past few quarters and the near-term headwinds it faces, we believe that it is likely to bounce back on growth trajectory driven by its product innovation and high margin portfolio.
The shares of the company gained 5.3% in the past one year, outperforming the Zacks categorized Beverages-Alcoholic industry which has gained 4.1% during the same period. Let us delve deep and find out what is going on with the stock.
Leading Market Share in All Geographies
Diageo, a global leader in spirits, has majority market share in nearly every spirit category in Europe and the U.S., two of its largest markets.
Growing Spirits Category
Most of the companies in the spirits market like Diageo, Boston Beer Inc. (SAM - Free Report) and Molson Coors Brewing Company (TAP - Free Report) are experiencing declining volumes. However, the spirits and wine market as a whole is getting an uptick, as younger generations are also consuming more spirits. Notably, Diageo is making efforts to focus on its spirits business, as a result of which it has planned to divest non-core assets. In Nov 2016, the company sold the majority of its U.S. and British wine operations to the Australian company, Treasury Wine Estates. Earlier in July, Diageo had sold luxury hotel and golf resort, Gleneagles, located in Scotland, to a private equity firm Ennismore Capital, to cut costs and bolster profits. These moves reaffirm its plans to focus more on the core spirits business.
Innovation and Adaption to Changing Demands
Diageo is set to capture the growing market of spirits and is innovating newer varieties of spirits to entice the growing consumer base. Further, the company is penetrating fast into emerging markets with the help of acquisitions.
In order to combat the slowdown in the spirits market, the company is striving to sustain its market share by adapting to the changing demands of the consumers. As a testimony to this effort, Diageo launched the new malt flavored SMIRNOFF Spiked Sparkling Seltzer beverage with only 90 calories and zero sugar in the beginning of 2017, which provides a guilt free drinking experience to its calorie conscious consumers.
Although the Zacks Rank #3 (Hold) company maintains a leadership position in the spirits market, we notice increasing restrictions on alcohol consumption by governments worldwide have dented revenue growth.
However, the sinful nature of its products is an advantage for the stock. Alcohol Beverage sector in particular has always been alluring for investors, as these sinful stocks always yield handsome returns for the portfolio. Since people drink both during times of recession as well as economic growth, such stocks are sometimes valued at a higher premium than companies that are more sensitive to economic trends. As a result, these stocks always benefit from the addictive nature of their products.
Key Pick
A better-ranked stock in the same sector is Constellation Brands Inc. (STZ - Free Report) carrying a Zacks Rank #2 (Buy) and has an expected long-term growth of 19%. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>