DEO
Diageo plc
stock NYSE ADR

You shouldn’t use AI to conduct investment analysis.
The earnings power yield on DEO is 11.9% on enterprise value using FY 2025 financials and current market cap.
Earnings power is what the business is earning currently without accounting for investments in future growth.
Deriving earnings power: NOPAT and add back deprecation and amortization. You don’t care what they paid in the past for businesses, you care what you are paying today. Add back 80% of marketing expense- economically most of this is an investment in future sales. Subtract 75% of current capex assuming it’s maintenance, it’s probably less than 75% but they don’t disclose it and I’m being conservative.
On enterprise value you need to deduct the cash from the net debt.
The fact that liquor is shrinking is good and bad. It’s bad because it’s hard to assume growth from here. But it’s good because it’s become that much harder for new competitors to get scale and branding in liquor. So the moat is higher. It’s also good because you are buying in at low expectations.
In terms of cost of capital, I use corporate interest rate plus a spread for risk. Here I’d place DEO at around 7%, IG credit of 5% plus another 2% for equity risk on a dominant brand. If discount rates rise because of growing inflation, DEO should have some pricing power.
It’s not growth but buying in at a 12% return plus upside if there ends up being even minimal growth is a good way to compound capital.
The downside is that people stop drinking more than they already have.
I’m also not saying there aren’t higher return opportunities in small caps, emerging markets, bankruptcy, etc. However, I don’t know if refinancing becomes difficult, governments get overthrown, I get defrauded, or I get mauled in creditor on creditor violence.

You shouldn’t use AI to conduct investment analysis.
The earnings power yield on DEO is 11.9% on enterprise value using FY 2025 financials and current market cap.
Earnings power is what the business is earning currently without accounting for investments in future growth.
Deriving earnings power: NOPAT and add back deprecation and amortization. You don’t care what they paid in the past for businesses, you care what you are paying today. Add back 80% of marketing expense- economically most of this is an investment in future sales. Subtract 75% of current capex assuming it’s maintenance, it’s probably less than 75% but they don’t disclose it and I’m being conservative.
On enterprise value you need to deduct the cash from the net debt.
The fact that liquor is shrinking is good and bad. It’s bad because it’s hard to assume growth from here. But it’s good because it’s become that much harder for new competitors to get scale and branding in liquor. So the moat is higher. It’s also good because you are buying in at low expectations.
In terms of cost of capital, I use corporate interest rate plus a spread for risk. Here I’d place DEO at around 7%, IG credit of 5% plus another 2% for equity risk on a dominant brand. If discount rates rise because of growing inflation, DEO should have some pricing power.
It’s not growth but buying in at a 12% return plus upside if there ends up being even minimal growth is a good way to compound capital.
The downside is that people stop drinking more than they already have.
I’m also not saying there aren’t higher return opportunities in small caps, emerging markets, bankruptcy, etc. However, I don’t know if refinancing becomes difficult, governments get overthrown, I get defrauded, or I get mauled in creditor on creditor violence.