UK: Diageo upgraded by investment group
Investment group Merrill Lynch has upgraded its recommendation on Diageo to buy from neutral, saying that market expectations are realistic and that the drinks conglomerate will achieve its 7% organic EBIT growth target.
After three years of market downgrades of EPS between 2002 and 2004, Merril Lynch confirmed a 30% increased EPS for Diageo of 52p for 2006, and forecasted 2007 EPS of 59p, implying 14% growth.
Global priority brands, which make up 58% of Diageo's total spirits volumes, and concentrated A&P spending on these premium brands is delivering growth, the research note said. The drinks company is expected to outperform in the expanding US market, where Diageo already has a 22% market share.
Merrill Lynch also set a price objective for Diageo's shares of 1050p each, and said that the drinks company has been "conservative as regards acquisitions".
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