Diageo share price wedge pattern points to rally as earnings near
The Diageo share price has done well in the past few weeks as investors bought the dip amid the ongoing turnaround efforts.
DGE has risen in the last nine consecutive weeks, reaching a high of 1,858p, its highest swing since November 10.
It has jumped by nearly 18% from its lowest level this year as traders wait for the upcoming financial results.
Diageo to release its earnings on Wednesday
Diageo is one of the biggest companies in the alcoholic beverage industry globally. It owns top brands like Smirnoff, Johnnie Walker, Guinness, Captain Morgan, and Ciroc.
Like other alcoholic beverage companies, such as Heineken, AB InBev, Constellation Brands, and Boston Beer, its stock has plunged in the past few months as consumption has dropped and competition has jumped.
Most notably, the company is contending with a global glut in the spirit industry.
Diageo share price has dropped by nearly 50% from its highest level in December 2021.
The company is now working on a turnaround strategy, led by Dave Lewis, the new Chief Executive Officer, who replaced Debra Crew, who left the company late last year.
As part of its turnaround strategy, Diageo has sold some of its businesses, including Sheridan to Casa Redondo. It also sold other companies like Pampero, Cacique, and Safari.
Additionally, the company sold its operations in Italy, Ghana, Seychelles, Nigeria, and Kenya. It is also considering exiting the Chinese market.
These transactions aim to simplify its business and boost its margins.
The next key catalyst for the Diageo share price will be the upcoming financial results, which will shed more color on its business and its operations.
In its recent trading statement, Diageo noted that its organic net sales remained flat in the first quarter of fiscal year 2026.
The company noted that it experienced organic net growth across Europe, Latin America, and Africa. This growth was offset by weakness in the Chinese and US markets.
Sales dropped by 2.2% to $4.87 billion, partly because of its disposals and the impact of foreign exchange.
At the same time, the management continued to cut costs, and is estimated to cut over $625 million in the next three years.
On the positive side, the company has become a bargain, with the price-to-earnings (PE) ratio falling to 15.4, lower than the FTSE 100 Index average of 18.
It is also lower than that of other companies like Brown-Forman, Constellation Brands, and Ab InBev.
Diageo share price technical analysis
The weekly timeframe chart shows that the Diageo stock price has crashed from 3,660p in January 2022 to a low of 1,587p in December last year.
Diageo stock has now rebounded to 1,858p to its highest level since November. It has moved above the key resistance level at 1,755p, its lowest level during the pandemic.
The stock has moved above the upper side of the large falling wedge pattern, a common bullish reversal sign in technical analysis. Also, the Relative Strength Index (RSI) and the MACD indicators have continued rising in the past few weeks.
Therefore, the falling wedge pattern is a sign that it may rebound in the coming weeks, with the next key level to watch being at 2,075p, the 23.6% Fibonacci Retracement level.
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