Diageo (DEO) is the toast of the town... on four continents

Posted Dec 26th 2007 5:13PM by Joseph Lazzaro
Filed under: Diageo plc (DEO), Stocks to Buy

In a skittish market, it's best to look for companies with the resources, experience, and geographic footprint necessary to ride out what could be more-challenging economic conditions in the year ahead. One company that fits the above bill is Diageo (NYSE: DEO).

Diageo is the world's largest producer of alcoholic drinks, with a stable of well-known brands, including Johnnie Walker Scotch, Smirnoff vodka, and Seagram 7, among others.

In general, analysts see 6%-9% revenue growth in the U.S. and solid, double-digit growth in Latin America and Asia. Modest growth is expected in Europe. Operating margins are better than adequate. Moreover, DEO's four-continent footprint should help the company deal with a U.S. economic slowdown, if one occurs in 2008. The Reuters F2007/F2008 EPS consensus estimates for DEO are $4.46/$4.92.

The risks? Continued U.S. dollar softness poses some currency risk. Analysts also have their eye on DEO's commodity costs, and on comparable-cost competitors' attempts to add brands to compete with DEO in key markets.

Stock Analysis: Diageo is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from DEO's shares. Sell / Stop Loss if you were to purchase shares in this company: $57.

DISCLOSURE: Joseph Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.

Tags: alcoholic beverage sector, DEO, Diageo, distillers, liquor stocks, LiquorStocks, vice stocks, ViceStocks