Shares of Diageo (DGEAF), the UK-headquartered distiller and drinks company which owns Guinness and a host of tequila marques, were sent lower on Monday in the wake of President Donald Trump slapping Mexico and Canada with 25% tariffs.
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Diageo, which owns the Crown Royal, Don Julio and Casamigos tequila brands, saw its UK-listed shares (GB:DGE) drop by around 3.7% to 2,329p in London on Monday.
Analysts at Jefferies reckon that 46.2% of Diageo’s sales in the US were made up of imports from Mexico and Canada.
Jefferies says Diageo, which also owns the Johnnie Walker whisky and Smirnoff vodka brands, will have to raise U.S. prices by 4.6% to accommodate the tariffs. Meanwhile the impact of a potential levy on the UK and European Union could add further pricing pressure.
It comes as shares of Constellation Brands (STZ) fell in the pre-market session on Monday. STZ is the importer of Mexican beers Corona and Modelo Especial in the U.S., leaving it directly exposed to the tariffs.
According to Bernstein analysts the company faces a potential 33% hit to earnings from the tariffs, while Citi estimates the damage at a marginally less severe 25%.
Meanwhile, Becle-owned Cuervo (BCCLF) faces a hit to earnings from the tariffs of as much as 30%, according to Bernstein.
DGEAF Results Due Tuesday
Investors are hopeful for a change in direction at Diageo as they question whether the 5-7% organic sales target is realistic. The company makes up around 4% of global alcohol sales but may need to cut its guidance as growth in the sector has cooled, particularly in the key U.S. market.
Shares in the company jumped last week on reports it was considering offloading its Guiness brand or its 34% stake in LVMH’s Moet Hennessy.
The company reports half-year interim results on Tuesday, February 4th.
Is DGEAF a Good Stock to Buy?
Overall, DGEAF is rated a Moderate Buy based on 10 Buys, two Holds and three Sells. The average DGEAF price target of $34.58 implies upside of 15% from current levels.
