Diageo (LSE: DGE) shares have endured a painful stretch, shedding 52% of their value over five years while the FTSE 100 gained around 50%.
That stark underperformance led at least one prominent retail investor to exit the position entirely a couple of years ago, only to buy back in more recently.
The shift in sentiment comes down to five distinct factors that together paint a more encouraging picture for the Guinness maker.
The most compelling reason for renewed optimism centres on leadership, with Sir Dave Lewis now serving as Diageo’s chief executive officer.
Sir Dave is widely credited with taking tough measures to rescue Tesco, and many investors believe that same decisive style can drive a meaningful turnaround at Diageo over time.
The broader point is that management quality is frequently underestimated by markets, which sometimes assume any capable operator can run an established business to the same standard.
Balance sheet repair represents the second pillar of the bull case, with net debt standing at $22.9bn as of June 2025 and a leverage ratio that had climbed to 3.4 times net debt to adjusted EBITDA from 2.5 times just three years earlier.
By June 2026, Diageo had already brought that ratio down to 3.1, with plans to reach the midpoint of its target leverage range of 2.5 to 3.0 times by the middle of next year.
Planned disposals, including the Royal Challengers Bengaluru cricket team in India and East African Breweries, are expected to support that deleveraging effort and improve investor sentiment.
The third reason is a return to growth, with Diageo issuing medium-term guidance for low-single-digit organic net sales growth and mid-single-digit organic operating profit growth.
These are not dramatic headline numbers, and risks remain from inflationary pressure on consumer spending in North America as well as shifting alcohol consumption patterns globally.
However, the targets look credible and suggest the worst may be over for shareholders who have endured years of disappointment, with cumulative free cash flow of around $8bn expected over three years.
Improving analyst sentiment forms the fourth part of the argument, with broker upgrades and rising price targets signalling a cautious shift in professional opinion toward the stock.
Jefferies upgraded Diageo at the start of the week with a price target of 2,200p, roughly 26% above recent trading levels, and 15 analyst teams now rate the stock as a Buy compared with just one Sell recommendation.
The fifth and final factor is valuation, with Diageo trading at less than 14 times next fiscal year’s forecast earnings even after a near 20% rally since the beginning of July.
With the company itself forecasting “attractive EPS [earnings per share] growth ahead of organic operating profit growth” over the medium term, there is a credible case that further upside remains from current levels.
Taken together, these five factors suggest Diageo could be a compelling turnaround candidate for investors willing to accept that recovery will take time to fully materialise.