Proactive Investors - RBC Capital Markets has indicated that Diageo PLC (LON:DGE) may be over-reliant on tequila, which has unexpectedly contributed to more than half of the beverage giant's profit growth since 2018.
This strong performance is largely due to tequila's high pricing, approximately four times higher than Diageo's overall portfolio, resulting in an estimated gross margin of around 90%.
Yet, the future is uncertain as changes in agave supply and Diageo's expansion plans beyond the US could impact profitability.
As a result, RBC has expressed doubts about Diageo's medium-term guidance of 5-7% sales growth and 6-9% profit growth, leading to its 'underperform' rating for the firm.
Diageo was changing hands for 3,554p, up 1.5%.
Of the 23 banks and brokerages following Diageo, 12 are positive on the stock, eight are neutral and three are negative.
The consensus price target is 3,977p.