Diageo plc (DEO): A Bull Case Theory

We came across a bullish thesis on Diageo plc on Recital’s Substack by Anthony Yiu. In this article, we will summarize the bulls’ thesis on DEO. Diageo plc’s share was trading at $106.97 as of August 6^th. DEO’s trailing and forward P/E were 25.30 and 11.63 respectively according to Yahoo Finance.

Diageo’s turnaround story is increasingly compelling as the company transitions from vague ambition to sharply defined problem-solving under new leadership. Once dogged by low free cash flow, bloated capital expenditure, and distorted incentives that prioritized margin percentages over profitable growth, Diageo’s FY2025 results revealed a management team finally confronting root causes.

While reported net sales were flat and adjusted EPS declined by 8.6%, free cash flow improved to $2.7 billion, supported by tighter working capital controls. The cultural shift—led by CFO Nik Jhangiani—is central, replacing rigid KPIs with commercial pragmatism and a focus on dollar profit pools rather than percentage margins. This operational reset is translating into concrete financial discipline: capex will fall from 7.7% of sales to a more sustainable mid-single-digit level, adding $200–300 million to FCF. Likewise, investment in maturing stock—a major drag—has begun to normalize, positioning Diageo for a multi-year earnings tailwind as aged inventory is monetized. Meanwhile, cost efficiencies through the “Accelerate” program and data-driven A&P allocation signal smarter—not leaner—brand investment.

Strategy-wise, management is evolving beyond pure premiumization, reinvesting in Guinness with a 30% capacity expansion and broadening reach in tequila and RTDs. Risks remain: poor performance in Asia-Pacific, a dip in U.S. market share in 2H FY25, and broader macro headwinds. Yet, with a credible ~$3 billion FCF target for FY26, Diageo’s 15x P/E valuation appears fair, balancing execution risk against turnaround potential. For the first time in years, Diageo is asking the right questions—and laying the groundwork for a financially sound, culturally aware recovery.

Previously we covered a bullish thesis on Diageo plc by Jimmy Investor in March 2025, which highlighted the company’s premium pricing power, strong margins, and global diversification. The company’s stock price has depreciated approximately by 2.1% since our coverage as the thesis didn’t play out. The thesis still stands as core brand strength remains intact. Anthony Yiu shares a similar view but emphasizes a leadership-driven turnaround.

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Disclosure: None.