Morgan Stanley has upgraded its coverage of Diageo.

The broker said yesterday (21 January) that it has upped the beverage giant's rating from 'equal weight' to 'overweight', with a GBP11.50 target.

Morgan Stanley added in a note that it has a more positive view of the spirits sector and that the category will meet market expectations for earnings due to continued growth from the emerging markets and its limited exposure to the rising cost of raw materials compared to brewers.

Due to a strengthened balance sheet and broadened emerging market exposure, Diageo is now its preferred holding, added the broker, maintaining that it will not change its 'overweight' rating on rival company Pernod Ricard.