RBC Capital upgrades Diageo to ‘outperform’
RBC Capital Markets upgraded shares of drinks company Diageo to ‘outperform’ from ‘sector perform’ on Tuesday, hiking the price target to 3,500p from 3,100p.
Not only is Diageo growing revenue faster than most consumer staples companies, but it’s doing so in its more highly priced, higher margin categories, RBC said, noting that this bodes well for its ambition to be a reliable compounder of growth.
"We’re big believers in the virtuous circle school of management: companies invest to drive revenue growth yielding declining cost ratios enabling them to raise margins and step up revenue investment," it said, adding that "Diageo seems to get it".
"Marketing/sales has risen in each of the last three years; this looks likely to continue. Sales growth has done likewise, and with consumer sentiment for its largest brands amongst the most favourable in the alcoholic beverages sector according to RBC Elements (our data science team) we expect it to remain robust."
RBC said it expects operating profit growth at the upper end of Diageo’s 5-7% medium-term guidance range.
At 1250 GMT, the shares were up 0.5% at 3,141p.