DIAGEO PLC ADRs $131 - New York symbol DEO

DIAGEO PLC ADRs $131 (New York symbol DEO; Conservative Growth Portfolio, Consumer sector; ADRs outstanding: 627.6 million; Market cap: $82.2 billion; Price-to-sales ratio: 4.5; Dividend yield: 2.9%; TSINetwork Rating: Above Average; www.diageo.com) is the world’s largest premium alcoholic beverage company. Its major brands include Guinness stout, Smirnoff vodka, Johnnie Walker whisky and Captain Morgan rum.

Diageo’s sales rose 6.2% in its 2013 fiscal year, which ended June 30, 2013, to 11.4 billion British pounds from 10.8 billion pounds in 2012 (1 pound = $1.68 Canadian). Gains in Latin America (up 15%), Africa (up 10%), North America (up 5%) and Asia (up 3%) offset a 4% drop in European sales.

Thanks to the higher sales and a successful costcutting plan, earnings rose 28.0%, to 2.5 billion pounds from 1.9 billion. Earnings per ADR gained 21.9% to 3.97 pounds from 3.11 pounds (each American Depositary Receipt represents four common shares).

Diageo recently increased its stake in United Spirits, India’s largest alcoholic-beverage maker, to 25.02% from 10.04%. It paid 594 million pounds for the additional shares.

Purchases like this will help Diageo reach its goal of getting at least 50% of its sales from emerging markets like Russia, Turkey and Vietnam by 2015, up from 42% in fiscal 2013.

The stock has gained 129.8% since we first recommended it in our July 2009 issue at $57. It now trades at a somewhat high 18.8 times the $6.96 per ADR that it will probably earn in fiscal 2014.

Diageo is a hold.

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