Diageo (LSE: DGE) shares have endured a torrid few years, shedding more than half their value over the past three years alone.
Despite that poor run, City analysts are now forecasting a meaningful recovery in the stock, pointing to an average 12-month price target of around £19.80.
That target represents approximately 29% upside from the current share price, a significant potential gain for investors willing to hold through ongoing uncertainty.
Based on that projection, a £10,000 investment made today would be worth around £12,900 before any income from dividends is factored in.
Adding the stock’s dividend yield into the equation, income payments could contribute a further £400 or so on top of any capital appreciation.
Reaching that target, however, would require a substantial shift in market sentiment toward the FTSE 100 drinks giant, which remains deeply out of favour with investors.
Concerns are centred on two fronts: the long-term impact of declining alcohol consumption driven by health awareness and GLP-1 drug usage, and the company’s heavily indebted balance sheet.
New chief executive Dave Lewis is attempting to address the growth challenge by moving away from the previous premiumisation strategy in favour of a value-driven, mass-market approach.
With consumer spending under pressure across major markets, that strategic pivot could prove well-timed and help to reinvigorate top-line growth at the business.
Lewis is also pursuing a cost-reduction programme, with reports emerging that some internal teams are examining headcount reductions of between 20% and 30%.
Those cuts could have a material effect on profitability in the years ahead while also freeing up cash to reduce the debt burden that has weighed on investor confidence.
Valuation also offers some encouragement, with the forward price-to-earnings ratio sitting below 13 based on earnings forecasts for the financial year ending 30 June 2027.
That multiple is well below where Diageo has historically traded, leaving room for a valuation re-rating should the business demonstrate a credible improvement in performance.
Over the last decade, the shares have commanded considerably higher earnings multiples, suggesting the current price reflects a significant discount to long-term norms.
Edward Sheldon, who owns shares in Diageo, believes the stock is worth holding with a three-to-five year investment horizon, though he acknowledged it is not his top pick at present.