Diageo plc (ADR) (DEO)

Outatime85 (< 20) Submitted: 9/11/06 9:51 PM : Start Price: $66.77 DEO Score: 16.53

World's leading distiller and distributor of wine and spirits. Diageo's broad portfolio includes many of the most popular brands around the globe, including: Crown Royal, Guinness Stout, Johnny Walker, Jose Cuervo, Captain Morgan, and Tanqueray.

Wine and liquor are closing the gap and siphoning market share from beer brewers, and many drinkers are migrating to high-end, premium brands -- playing right into DEO's strength.

With light capital requirements (capex spending only totalled 3% of last year's $16.8b in sales) Diageo generates copious FCF, most of which is returned to shareholders through dividends and share repurchases.

Hard to ignore the company's obvious scale advantages (the firm's annual sales volume is 91 million cases, 15 million more than its next closest rival).

Alcoholic beverage firms can be countercyclical, and are somewhat immune to economic downturns.

Strong international growth prospects.

Increased marketing spending generating better results in the key on-premise (bars, clubs, restaurants, etc.) distribution channel.

This reliable global giant has attractive margins, steady cash flows, and the power to push through price increases on products that benefit from robust (and virtually guaranteed) demand.

Think the world's consumers will suddenly lose their thirst for alcohol? I doubt it.

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