UBS Downgrades Diageo (DEO), Flags Risks in U.S. Spirits Market

Core Viewpoint - Diageo plc (NYSE:DEO) is facing significant challenges in the U.S. spirits market, leading to a downgrade by UBS and concerns over its performance in the coming year [2][3]. Group 1: Stock Performance and Analyst Downgrade - UBS downgraded Diageo from Buy to Neutral and reduced the price target from 2,250 GBp to 1,850 GBp, citing ongoing risks in the U.S. spirits market and a decline in share price this year [2]. - The company is among the 11 worst-performing dividend stocks year-to-date, indicating broader market concerns [1]. Group 2: Sales and Market Challenges - Diageo reported flat organic net sales and a 2.9% growth in organic volume for fiscal Q1 2026, with growth in Europe, Latin America, and Africa, but facing challenges in the Chinese white spirits market and a softer consumer environment in the U.S. [4]. - The company is experiencing sluggish sales in Latin America, pressure on consumers in the UK and U.S., and a decline in alcohol consumption among Gen Z, compounded by the rise of GLP-1 weight-loss drugs [3]. Group 3: Future Outlook and Financial Guidance - Despite current setbacks, Diageo remains optimistic about future performance, raising its guidance for organic sales and operating profit, and expects to generate approximately $3 billion in free cash flow in 2026 [5]. - Premium brands like Johnnie Walker, Crown Royal, Smirnoff, Baileys, and Captain Morgan are seen as potential growth drivers amidst the challenges [3].