COMPANY DESCRIPTION

Diageo is the world's leading producer of branded premium spirits. It also produces and markets beer and wine. Brands include Johnnie Walker blended scotch, Smirnoff vodka, Crown Royal Canadian whiskey, Captain Morgan rum, Baileys Irish Cream, and Guinness stout. Diageo also owns 34% of premium champagne and cognac maker Moet Hennessy, a subsidiary of French luxury goods maker LVMH Moet Hennessy-Louis Vuitton, and a near-55% stake in India's United Spirits.

 

ECONOMIC MOAT

In our opinion strong intangible assets and a cost advantage are at the heart of Diageo's wide economic moat.  DEO’s total alcohol product portfolio is far from complete, it contains 14 of the top 100 global premium distilled spirits brands and 7 of the top 20.

 

OUTLOOK

The company has been operating amid challenging market conditions. Demand for its beverages are down in core markets of late. Additionally, unfavorable foreign exchange rates have weighed on results in recent months. Diageo plans to put calorie and other information on some of its products in response to a more health-conscious trends. Recent product introductions and cost-cutting efforts should buoy results. Sales and earnings should advance at a solid clip over the 3- to 5-year pull. Finances are no cause for concern. The company generates strong cash flow. Consequently, Diageo is well positioned to handle its debt load and fund its expansion in the years ahead.

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STRENGTHS

  • Significant brand strength in premium spirit segment

  • Extensive product portfolio across categories and price points

  • Widespread prodcution facilities

WEAKNESSES

  • Legal proceedings

THREATS

  • Stringent advertising regulations

  • Booming trade of conterfeit alcohol

  • Dependence on third parties for raw materials

OPPORTUNITIES

  • Growing sprit and wine markets

  • Increasing disposible income and cultural shift towards alcoholic beverages in Asia

  • Favorable trends in travel retail

The above report is for information purposes only, and is not a solicitation or offer to buy or sell any securities. Past performance is no guarantee of future performance. Neither diversification nor asset allocation ensures a profit or guarantees against loss. Before investing, investors should consider their risk tolerance, investment objectives, time horizon, available capital, and charges and expenses.  

 

The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.

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