Diageo's sell-off marks attractive buying opportunity, says Citi

Citi upgraded Diageo from 'neutral' on 3 July on the back of positive earnings momentum going into the new financial year – something which the bank still believes.

The results for the year ended 30 June 2024, which were met with a 5% share-price fall after a 1.4% decline in net sales and a 5% fall in organic operating profit, has acted as a "clearing event" for shareholders, Citi says.

"Downgrades to the FY25 consensus are in excess of the c.-5% we think the market was braced for ahead of Diageo’s FY24 results. However, the stock rallied from its early results day share price lows to finish down just c.5%. This reaction reinforces our view that, like us, investors are viewing these results as a clearing event," the bank said in a research report.

While a cautious outlook from management has prompted Citi to trim its organic growth estimates for the current year – with the stock's target price coming down accordingly to 2,900p from 3,000p – "we believe this is the final downgrade for Diageo".

"With earnings/valuations metrics troughing and scope for H2 25 organic growth to accelerate as the group laps through destocked comps, we think it is time to revisit what remains an attractive compounding mid-term growth story. We reiterate our 'buy' rating."

Diageo's stock was up 2% at 2,466.5p by 0842 BST.