We came across a long thesis on Diageo plc (NYSE:DEO) on ValueInvestorsClub by Hal. In this article we will summarize the bulls’ thesis on DEO. The company’s shares were trading at $118.16 when this thesis was published, vs. closing price of $124.88 on Jan 7th.
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Diageo plc (NYSE:DEO) is a UK-based multinational company specializing in the production and distribution of alcoholic beverages, boasting a portfolio of over 200 brands. As the largest branded spirits company globally, with approximately 10% market share, it also produces the widely recognized Guinness beer. In the Scotch whisky segment, DEO holds a commanding 39% market share.
The bull thesis is based on the idea that Diageo plc (NYSE:DEO) is currently undervalued due to poor recent growth as well as the market’s concern that GLP-1 drugs, as well as younger generations potentially consuming less alcohol, could limit the company’s growth in the long-term. The author refutes the first argument by claiming that there’s no scientific link between obesity and alcohol consumption and also provides some empirical evidence that alcohol consumption among the younger generations has been stable since the 1980s. With that in mind, the author argues that this mispricing represents a good opportunity to acquire a high-quality manufacturer of leading beverage brands – DEO owns almost half of the Scotch whiskey stock currently in the maturing stage, which represents a position that is impossible to replicate by competitors. Also, the company is well-diversified across beverages and geographies, which should allow it to capitalize on population growth trends as well as the trend of premiumization in emerging markets.
All in all, despite not giving a precise price target for the stock, the author believes that the aforementioned arguments position Diageo plc (NYSE:DEO) well to gain market share and become a winner in the industry. He argues that DEO seems undervalued even under a conservative future growth scenario.
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 doing so within a shorter time frame. If you are looking for an AI stock that is more promising than DEO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.