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Diageo upgraded to ‘buy’ by Liberum as it is "likely" to survive coronavirus pandemic

Analysts kept their target price of 3,100p for the drinks giant unchanged

Diageo PLC - Diageo upgraded to ‘buy’ by Liberum as it “passes our stress test”

Diageo PLC (LON:DGE) has been upgraded to ‘buy’ from ‘hold’ by Liberum Capital as its analysts believe the drinks giant “seems likely to survive" the current coronavirus pandemic”.

The maker of Guinness stout and Johnnie Walker whisky has been hit by closure of high margin on-trade outlets and diminished celebratory occasions globally as the world moves into lockdown.

READ: Diageo weak as Guinness maker warns of £200mln profit hit from coronavirus outbreak

However Liberum's analysts maintained a target price of 3,100p on the FTSE 100-listed firm's stock, noting that Diageo’s “iconic brands” and the route-to-market provide a “defensive” model.

In a note to clients, they said the drinks producer is set to emerge unscathed from the crisis provided the situation begins to improve between January and June 2021.

The analysts pointed out that Diageo can afford to maintain its dividend, though it would constrain potential acquisitions.

“It would be a shame if it missed a chance to buy crown jewel spirit assets during a crisis,” they added. “With this in mind, Diageo should consider hoarding its dividend, only to pay it out later if such a deal does not arise.”

Diageo shares were flat at 2,556.21p on Tuesday morning.

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