Why did Deutsche Bank downgrade Diageo stock after its rally?

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Investing.com -- Deutsche Bank downgraded Diageo PLC (LON:DGE) to hold from buy on Wednesday, citing the stock’s outperformance since the firm’s previous upgrade.

The shares have gained 22% since Deutsche Bank upgraded the stock on March 31, outperforming the STOXX Europe 600 Food & Beverage Index by 11 percentage points. The firm maintained its price target at 1,700 pence. Diageo closed at 1,672 pence on Tuesday.

Deutsche Bank’s underlying estimates for Diageo remain broadly unchanged. The firm kept its price target at 1,700 pence using an unchanged discounted cash flow methodology, despite rolling its valuation forward to fiscal year 2027 from fiscal year 2026.

Diageo will report fiscal year 2026 results and provide a strategy update on August 6. Deutsche Bank expects the results to align with consensus estimates and anticipates a reset in fiscal year 2027 to drive competitiveness.

The firm sees a broad range of potential outcomes with greater downside than upside risk. Deutsche Bank’s earnings per share forecast for fiscal year 2027 and beyond sits 10% below Bloomberg consensus expectations.

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