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Morgan Stanley Cuts Target on Diageo (DEO) as Growth Pressures Persist

Diageo plc (NYSE:DEO) is included among the 15 Global Dividend Stocks to Diversify Your Portfolio.

On December 18, Morgan Stanley lowered its price target on Diageo plc (NYSE:DEO) to 1,530 GBp from 1,595 GBp and kept an Underweight rating on the shares.

A day earlier, Diageo announced a major asset sale as it works to bring down its debt. The company agreed to sell its stake in its Kenyan business to Asahi in a deal valued at $2.3 billion. Management has been clear this year that divestments would play a role in repairing the balance sheet, and this transaction fits that plan.

Under the agreement, Diageo plc (NYSE:DEO) will sell its 65% stake in East African Breweries Limited, or East African Breweries Limited, to Asahi. Diageo will still maintain a presence in the market through a licensing arrangement with EABL, allowing it to keep some commercial ties to the region. The deal values EABL at $4.8bn and is expected to reduce Diageo’s net debt-to-earnings ratio by about 0.25 times. That matters because the company’s leverage is currently above its target range of 2.5 to 3 times.

Asahi will pay close to $3 billion for the transaction. This includes $2.35 billion for Diageo plc (NYSE:DEO)’s full stake in Diageo Kenya and $646 million for a 53.8% stake in UDVK, the group’s local distilling unit. Together, those holdings represent Diageo’s 65% interest in EABL. After taxes and deal-related costs, Diageo expects to receive $2.3 billion in cash.

Earlier this year, interim chief executive Nik Jhangiani said the company was planning significant divestments to ease pressure on the balance sheet. Diageo has been dealing with weaker alcohol demand and the impact of US President Donald Trump’s trade tariffs, both of which have weighed on performance.

Diageo plc (NYSE:DEO) produces and distributes a wide range of alcoholic beverages, with brands that include Johnnie Walker, Crown Royal, J&B, Buchanan’s, and Windsor.

While we acknowledge the potential of DEO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than DEO and that has a 100x upside potential, check out our report about the cheapest AI stock.

READ NEXT: 13 Highest Paying Monthly Dividend Stocks to Buy and 15 Dividend Stocks With Low Payout Ratios and Strong Upside

Disclosure: None.

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When Jeff Bezos said that one breakthrough technology would shape Amazon’s destiny, even Wall Street’s biggest analysts were caught off guard.

Fast forward a year and Amazon’s new CEO Andy Jassy described generative AI as a “once-in-a-lifetime” technology that is already being used across Amazon to reinvent customer experiences.

At the 8th Future Investment Initiative conference, Elon Musk predicted that by 2040 there would be at least 10 billion humanoid robots, with each priced between $20,000 and $25,000.

Do the math. According to Musk, this technology could be worth $250 trillion by 2040.

Put another way, that’s roughly equal to:

  • 175 Teslas
  • 107 Amazons
  • 140 Metas
  • 84 Googles
  • 65 Microsofts
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  • Larry Ellison — through Oracle, is spending billions on Nvidia chips and partnering with Cohere to embed generative AI across Oracle’s cloud and apps.
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