What BUD is to beer, Diageo (NYSE:DEO) is to spirits. Its brands include top sellers Smirnoff vodka, Johnnie Walker whisky, Baileys Irish Cream and Guinness stout, to name a few. Diageo will top $17 billion in annual revenue this fiscal year and has a market capitalization of about $75 billion, to rival media giant News Corp. (NASDAQ:NWSA) and automaker Honda (NYSE:HMC) in size.
And just as Anheuser-Busch InBev has rolled up the brewing space lately, DEO has been on an acquisition tear. In 2011, it purchased Turkish liquor company Mey Icki for more than $2 billion. In 2012, it did another $2 billion deal to acquire a majority stake in India’s United Spirits. And who knows what’s next for Diageo in 2013.
While DEO has been sleepy in 2013, lagging the S&P 500’s gains since Jan. 1, the stock has outperformed handily over the last 12 months. Longer-term, Diageo stock is up 75% since January 2010 vs. about 40% for the S&P.
And that’s just share price, by the way. DEO pays a respectable 2.4% dividend (despite its big spending on acquisitions) and substantially hikes its payments every year.
Fundamentals are strong, too, including a roughly double-digit sales jump in 2012. Revenue should grow at a similar clip in 2013, but earnings are forecast to improve by more than 30% thanks to strong overseas demand. Sales of Johnnie Walker in China soared more than 60% last year, proving both the power of this fast-growing market and the might of the brands in the Diageo portfolio.
Also a plus: With a forward price-to-earnings ratio of under 17, it has one of the lower earnings multiples in the fast-moving spirits segment. Thanks to the recent sluggishness in shares, the company seems fairly valued for new investors right now.