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Diageo Hits 52-Week High on Buyouts, Rising Alcohol Demand


Alcohol stocks have been performing well of late, primarily backed by the rising demand for flavored whisky, premium tequilas and spirits. The industry has recently witnessed the spirits segment gathering momentum, accounting for about 36% of the total alcohol market, grabbing share from beer and wine sales. (Read More: Cheers to These 5 Alcohol Stocks Gaining on Industry Boom)

One such stock is Diageo plc DEO, which has been witnessing strong growth driven by rising demand for beverages. In fact, this leading global manufacturer and seller of alcohol beverages recently hit a 52-week high of $137.59 on Sep 12, eventually closing at $137.35. We believe that the company’s dedicated efforts to expand business through acquisitions and focus on high margin brands has aided it to reach a new high. In addition, this Zacks Rank #1 (Strong Buy) stock carries a VGM Score of B, further depicting its inherent strength.

We also observed that the company’s shares have increased 23.5% in the past 12 months, marching ahead of the industry’s gain of 10.3%.

So let’s delve into the factors that have been helping the company’s shares to surge and exhibit a sturdy performance.

Acquisition Aids Expansion

Diageo is always on the lookout for expansion opportunities, frequently undertaking acquisition-related activities. In June 2017, the company announced the acquisition of Casamigos, one of the fastest-growing premium tequila brands in the United States. This buyout is likely to strengthen Diageo's market share in the tequila category along with the existing Don Julio brand, acquired in February 2015. Notable acquisitions in the past includes; De Leon Comb Wine & Spirits, United Spirits Limited, Mey Içki, Shui Jing Fang and Halico.

Gains from Emerging Markets

Diageo, like most other multinationals, is turning attention to the emerging markets. It is the leading international spirits company in markets of Africa, Latin America and Asia. Moreover, the company has been successful in the emerging regions by catering to local tastes. Its products like Johnnie Walker and Blue Label, have been customized according to the local palate in China, India, Thailand, Vietnam, Brazil and Mexico.

Focus on High-Margin Brands

Diageo puts greater emphasis on high-margin products as they have been depicting strong growth globally. During first-half fiscal 2017, the company’s premium brands delivered growth of approximately 6% while the super deluxe brands went up 5%. Also in accordance with this strategy, management has resorted to disposing less productive brands and non-core assets.

Looking for More Consumer Staples Stocks? Check These

Investors may also consider other stocks from the Consumer Staples sector such as Nu Skin Enterprises, Inc. NUS, Ollie's Bargain Outlet Holdings, Inc. OLLI and Constellation Brands, Inc. STZ, all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Nu Skin delivered an average positive earnings surprise of 10.8% in the trailing four quarters. It has a long-term earnings growth rate of 8.7%.

Ollie's Bargain Outlet delivered an average positive earnings surprise of 12.4% in the trailing four quarters. It has a long-term earnings growth rate of 19.5%.

Constellation Brands delivered an average positive earnings surprise of 11.7% in the trailing four quarters. It has a long-term earnings growth rate of 18.2%.

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