Diageo Earnings: Near-Term Visibility Is Limited, but a Trough in the Cycle May Be Approaching

Diageo reported a first half of fiscal 2024 performance that was better than our recently-lowered forecasts. It is a relief that performance was no worse than we had feared following the company's profit warning in November, but broad-based volume weakness suggests that discretionary consumer spending remains soft. We are reiterating our wide moat rating and raise our fair value estimate to GBX 3,100 from GBX 3,000 to account for the better-than-expected results. We believe Diageo is moderately undervalued, based on our assumption of gradually recovering revenue growth, but near-term visibility is limited, and if consumer spending deteriorated further, there could be further downside to the current market price.