DiageoNYSE: DEO

British booze supplier Diageo PLC (LSE:DGE) has hardly been in high spirits this year, with the FTSE 100-listed multinational's share price falling more than 10% in the first half. But with destocking headwinds settling down and the prospect of positive earnings momentum in the upcoming financial year, Diageo shares may currently offer a cheap round for patient investors.

The stock price of Diageo (NYSE: DEO) trades at $130 per share, about 40% below its peak level of over $220 seen in December 2021. In contrast, its peer Anheuser-Busch InBev stock (NYSE: BUD) saw a 2% decline over this period.

Diageo's dividend has increased every year for more than 20 years, so it has an exceptional track record of progressive dividend growth. Diageo's declining equity is slightly odd because a growing company will usually be growing its equity, as that's the foundational source of funding upon which the rest of the business depends. Looking beyond the short-term headwinds, Diageo still operates in a very large and growing market.

Diageo (DEO) benefits from its focus on improving productivity coupled with its diversified footprint, a solid portfolio of brands, innovation and pricing.

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AnheuserBusch InBev, Diageo, Constellation Brands, Molson Coors and The Boston Beer have been highlighted in this Industry Outlook article.

Diageo's recent stock price underperformance may provide a long-term upside for patient investors. Diageo's Chinese and Indian subsidiaries might increase their core operating profit margin in the next 2-3 years. This is supported by premiumization and scale. Ongoing discount on Diageo's valuation, despite a quality asset-based portfolio. This means a buy.

Diageo plc has been performing well due to its emphasis on enhancing productivity, diverse presence, strong brand portfolio, innovation and marketing efforts, and pricing strategies. Additionally, the company appears to be in a strong position for growth, supported by the positive trends in the beverage industry.

Diageo's dividend yield is currently higher than its historical average and +1 standard deviation level, suggesting a significant valuation compression. Despite facing short-term challenges like a decrease in EPS and difficulties in Latin America, the company's long-term growth prospects and steady profitability indicate a favorable outlook. It is comparable to an equity bond in terms of stability.