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Image source: Getty Images <\/p>\n Image source: Getty Images <\/p>\n
Diageo (LSE:DGE) shares have quietly climbed 10% over the last two months. While there\u2019s still a long way to go to rebuild the spirits giant\u2019s valuation, this is nonetheless an encouraging sign for long-term investors who have patiently waited through years of drift.<\/p>\n
The question now is whether this is a temporary bounce or the opening act of a multi-year recovery. Let\u2019s find out.<\/p>\n
What\u2019s Dave Lewis actually been doing? <\/p>\n
When Sir Dave Lewis\u00a0was appointed CEO of\u00a0Diageo\u00a0earlier this year, the parallels with his arrival at\u00a0Tesco\u00a0back in 2014 were immediately apparent:<\/p>\n
A bloated cost structure.<\/p>\n
A loss of strategic focus.<\/p>\n
A dividend that needed resetting to fund the rebuild.<\/p>\n
His playbook at\u00a0Tesco\u00a0was methodical and brutally effective \u2013 strip out management layers, divest non-core assets, refocus on what the business does best, and let the cash flows recover naturally.<\/p>\n
Looking at his early moves at Diageo, it seems he\u2019s applying this same strategy once again.<\/p>\n
In the last two months alone, Lewis has initiated the divestment of several underperforming regional spirits brands, begun flattening a middle management structure that had grown unwieldy under the previous regime, and refocused investment behind Diageo\u2019s crown jewels (Johnnie Walker,\u00a0Guinness,\u00a0Tanqueray and\u00a0Don Julio).<\/p>\n
Looking back at Tesco, it took Lewis roughly 18 months from appointment before the share price began a sustained multi-year re-rating. So far, we\u2019re only three months into his Diageo journey. So is it too soon to think about buying shares?<\/p>\n
Is now the time to consider buying? <\/p>\n
Let\u2019s start with the positives. The bull case is rooted in what Diageo still has underneath the strategic noise. The company owns some of the most recognisable premium spirits brands on the planet, with genuine pricing power, a global distribution network, and exposure to the long-term premiumisation trend in emerging markets.<\/p>\n
That\u2019s particularly important in regions such as India\u00a0and\u00a0Africa, where a growing middle class is trading up to international spirits brands.<\/p>\n
With that in mind, analysts at Barclays recently reiterated their Buy recommendation with a 2,320p price target, arguing that Lewis\u2019s early actions demonstrate the kind of operational discipline the business has been missing, and that earnings estimates may be too conservative if the turnaround gains traction.<\/p>\n
However, even bulls like Barclays are aware of the risks. Turnarounds of this scale, even under an experienced stewardship, are notoriously difficult to execute.<\/p>\n
Diageo still carries significant debt on the balance sheet. And while the company has begun tackling this excessive gearing, there\u2019s no guarantee these efforts will succeed. If consumer spending on premium spirits softens further in key markets such as the US\u00a0or\u00a0China, the firm\u2019s recovery could be delayed significantly.<\/p>\n
The bottom line <\/p>\n
The early signs from Lewis are genuinely encouraging. And for long-term investors, the combination of well-known brands, an experienced turnaround operator, and a share price still well below its historic highs makes Diageo shares a compelling story to follow closely.<\/p>\n
I\u2019m not ready to call it a confirmed recovery just yet. But with such a depressed valuation, the risk-to-reward ratio looks very favourable, in my eyes. That\u2019s why I think investors may want to give Diageo shares a closer look.<\/p>\n
The post Diageo shares are up 10% in 2 months! Has the recovery rally started?<\/a> appeared first on The Twelfth Magpie<\/a>.<\/p>\n More reading<\/p>\n Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.<\/a><\/p>\n Motley Fool UK 2026<\/p>\n","protected":false},"excerpt":{"rendered":"Image source: Getty Images Diageo (LSE:DGE) shares have quietly climbed 10% over the last two months. While there\u2019s…\n","protected":false},"author":2,"featured_media":42438,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[21250],"tags":[21512,21511,4110,21283,21513,3187],"class_list":["post-42437","post","type-post","status-publish","format-standard","has-post-thumbnail","category-diageo","tag-buying-shares","tag-dave-lewis","tag-diageo","tag-johnnie-walker","tag-sir-dave-lewis","tag-tesco"],"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@UnitedKingdom\/116608657436372179","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/42437","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/comments?post=42437"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/42437\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media\/42438"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media?parent=42437"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/categories?post=42437"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/tags?post=42437"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}