Alcohol maker Diageo PLC (DEO) is exploring a potential spinoff or sale of iconic beer brand Guinness.
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The potential divestiture of Guinness beer comes as Diageo reviews its entire drinks portfolio. News of a potential sale of the beer label sent DEO stock up 5%. Guinness is one of Diageo’s top performers and a sale could be quite lucrative for the company, say analysts.
Tracing its roots to 18th century Ireland, Guinness beer is known for its dark color and thick foam, and for often being served at room temperature. The beer is an outlier in Diageo’s alcohol business, which consists mostly of spirits or hard liquor such as Johnnie Walker whisky.
Beer Sales Surge
Sales of hard liquor have declined since the Covid-19 pandemic as consumers adopt healthier lifestyles or trade down from expensive bottles of spirits. In contrast, sales of beer have soared. Guinness sales have grown by double digits every year since 2021, with its non-alcohol version also seeing sales rise sharply.
A sale of the Guinness brand, brewery, and other assets is likely to fetch $10 billion or more, according to some media reports. The success of the Guinness brand has made some analysts question why Diageo would want to sell the beer unit at this time, although no deal has been announced.
DEO stock has declined 9% in the last 12 months, underperforming the market.
Is DEO Stock a Buy?
The stock of Diageo has a consensus Moderate Buy rating among two Wall Street analysts. That rating is based on two Buy recommendations issued in the last three months. The average DEO price target of $139 implies 11.52% upside from current levels.
