- Summary:
- What is the outlook of the Diageo share price? We explain why the stock had a grisly plunge and what to expect in the near term.
The Diageo (LON: DGE) share price was punched in the face this week after the company published its interim financial results of the last half year. The stock plunged by more than 5% and reached its lowest level since March last year. In all, shares of the biggest spirit manufacturer in the world, have crashed by over 14% from the highest level in 2022.
A great dividend stock
Diageo, which I consider to be a high-quality blue-chip company, has underperformed the FTSE 100 in 2022. I think this performance is highly unwarranted because of the company’s business performance. On Thursday, the company said that its net sales for the period rose by 18.4% to £9.4 billion. This performance was helped by the relatively weak British pound and strong organic growth.
Diageo’s business grew across all regions despite the sluggish nature of the economy. The company was also helped by the fact that it sells multiple leading brands across different segments like spirits, beer, and wines. However, a key challenge is that the company’s margins thinned, which was expected because of the rising cost of doing business. Operating profit expanded to 15.2% to £3.2 billion.
Another major challenge is that its free cash flow declined during the period. Net cash flow fell by £0.7 million to about £1.2 billion. Still, it managed to increase its dividend by 5% to 30.8 pence, bringing the total shareholder return to about 5%. Diageo is one of the best FTSE 100 companies for income-focused investors.
Diageo share price analysis
I believe that technical analysis are an important part when analyzing any company or financial asset. That’s because of the role that the overall sentiment plays in the market. Now, the daily chart shows that the Diageo share price collapsed hard on Thursday and made a bearish gap. This decline saw it crash to the key support level at 3,404p, the lowest point since March 2022.
As it dropped, it managed to move below the key support a 3,578p, the lowest point on January 6 of this year. It also tumbled below the important support at 3,490p, the lowest level on October 28.
The shares have also formed a descending trendline that is shown in green and moved below all moving averages. While I believe that this price action was an overreaction, I suspect that the shares will remain under pressure for a while and then stage a comeback later this year.
It will remain between the key support at 3,404p and the resistance point at 3,578p in the coming days. A break below the support at 3,404p will mean that bears have prevailed, which will push the price sharply lower. This consolidation view is in line with my recent Diageo forecast.
