Canaccord sees further downside at Smirnoff maker Diageo after weak Q3

LONDON (ShareCast) - Canaccord Genuity (Other OTC: CCORF - news) has raised its target price slightly for Diageo (LSE: DGE.L - news) , but said that Thursday's update from the spirits producer contained a "cocktail of small disappoints". The broker maintained a 'sell' recommendation, saying it sees no end yet to the downgrade cycle for Diageo.

Canaccord lowered its earnings estimates for the Smirnoff and Baileys maker after third-quarter sales were "disappointing relative to our own and, we believe, consensus expectations in all regions except Africa".

Group organic net sales fell 0.7% in the three months to 31 March, taking the total decline for the first three quarters to 0.3%.

"The 9M IMS is a cocktail of small disappointments which, taken together, seem likely to keep any investor enthusiasm on hold," the broker said.

Diageo's shares trade at 20.5 times estimated earnings for the 2015 calendar year, a 5% discount to most beverage stocks that Canaccord covers.

"While not unrealistic in relative terms, we believe the sector more than reflects current prospects and see further downside risk to Diageo estimates," it said.

The target price was lifted from 1,465p to 1,515p, but still suggests significant downgrade from Friday morning's 1,909.5p level, up 0.7% on the day.