Deutsche Bank downgrades Diageo to ‘sell’

Deutsche Bank downgraded Diageo on Wednesday to ‘sell’ from ‘hold’ and cut the price target to 3,230p from 4,050p as it argued the stock was "priced for perfection" and "due for deceleration".

The bank said it believes US Spirits growth has slowed and it fears that inventory levels may overshoot requiring shipments to lag depletions.

In addition, DB sees Diageo as being at risk of cyclical headwinds as consumer spending comes under pressure.

"We believe the valuation is stretched given Diageo is the only European beverages company that doesn’t trade at a discount to its three-year/five-year average price-to-earnings," it said.

"We therefore believe Diageo needs upgrades to outperform and see that as increasingly unlikely as macro and category headwinds build."

At 1150 BST, the shares were down 3.6% at 3,548p.