Here’s another great reason why Diageo’s share price might take off!

Diageo‘s (LSE:DGE) share price continues to pick up momentum, offering much-needed relief to investors like me. The firm started 2026 on the front foot after years of underperformance, and is now up 15% in the year to date.

I think the comeback could be on for a FTSE 100 stock that’s slumped 38% over the past five years. And news late last week has boosted my confidence in a sharp turnaround for the drinks manufacturer.

Want to know why I’m so excited? Read on…

Tariff trouble

Diageo’s profits have been battered in recent times by weak consumer spending and changing consumer tastes, more specifically falling alcohol demand in the West. What hasn’t helped matters is President Trump’s decision to slap trade tariffs on a wide variety of imports into the US.

This represents a major problem for Diageo. It makes roughly 40% net sales from North America, the lion’s share of which comes from US customers. Yet a significant number of its key products — such as Johnnie Walker Scotch whisky and Baileys Irish cream — are imported into the country, leaving them at the mercy of tariffs.

The FTSE company has put the cost of these tariffs at roughly $200m a year. This is based on tariffs of 10% and 15% on British and European goods, respectively, and exemptions on Mexican and Canadian spirits.

Welcome relief

So potentially good news on Friday (20 February) saw the US Supreme Court rule such tariffs as illegal. Lawmakers said the White House had overreached its authority, a result President Trump called “deeply disappointing” to perhaps the surprise of no-one.

As a counter punch, Trump imposed a global 15% tariff to replace those the Supreme Court expunged, under a mechanism called Section 122. However, these can only be applied for 150 days before Congress must step in to extend them, removing the threat of indefinite tariffs for companies.

There are other positives for Diageo to take. Even if Section 122 is extended, the maximum tariff that can be applied is 15%, eliminating the threat of further hikes. It’s also possible the firm could reclaim the $200m tariff costs it incurred in 2025 after the Supreme Court’s ruling.

The situation’s fluid, and more legal and political twists are likely. But Friday’s news is a huge net positive for Diageo.

Does it makes Diageo shares a buy?

This news alone doesn’t make the drinks giant a buy, in my view. But it adds to the sense of momentum Diageo’s experiencing, and could help its share price enjoy further gains.

The company still has hurdles to overcome, but things could get easier from this point as interest rates fall, boosting consumer spending. Furthermore, the ongoing development of new drinks — and more specifically, non-alcoholic variants of popular labels like Guinness and Tanqueray — provides an opportunity for it to capture changing consumer trends.

Finally, I’m optimistic new CEO Sir Dave Lewis will resharpen the company’s operations to kickstart earnings growth. In more good news last week, the Financial Times reported that ‘Drastic Dave’ will reduce layers of management to improve decision-making and reduce costs.

Today, Diageo shares trade on a forward price-to-earnings (P/E) ratio of 15.5 times, well below historical levels around 21. I think this makes it an excellent recovery stock to consider.

The post Here’s another great reason why Diageo’s share price might take off! appeared first on The Motley Fool UK.

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Royston Wild has positions in Diageo Plc. The Motley Fool UK has recommended Diageo Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.