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(Sharecast News) - Analysts at Credit Suisse reiterated their 'outperform' recommendation for shares of Diageo, telling clients that they spied "upside risks" to the spirits-maker's US and Asia Pacific businesses.
The US business alone accounted for approximately half of the company's profits.
They also pointed out upside of at least £2bn to the company's plans for buybacks and mergers and acquisitions thanks to net debt standing at 2.2 times' its earnings before interest, taxes, depreciation and amortisation, versus a leverage target of 2.5-3.0 times.
Foreign exchange tailwinds also saw them revise their estimates for Diageo's earnings per shares over fiscal years 2023-25 up by 7% in the wake of recent weakness in sterling - and possibly a bit more.
Concerning the first point, they explained that Diageo was gaining market share, in a US spirits industry that had been growing at a clip of 5-6& in recent months, thanks to its over indexation to the fast-growing Tequila category.
A restriction-free Thanksgiving and Christmas might also bolster growth in US spirits across the fourth quarter.
"DGE trades on calendarised 2023E [price-to-earnings multiple] of 19x, a 5% premium to European consumer staples (down from 20%).
"We think US growth upside should re-rate the stock. Risks include a significant macro shock to the US consumer and higher cost inflation."
