Diageo (LSE:DGE) shares have been in the doldrums for quite some time. Over five years, this former FTSE 100 darling has lost 52% of its value, while the blue-chip index has gained about 50%.

This disappointing performance led me to dump shares of the Guinness maker a couple of years back. However, I’ve recently bought back in.

Here are five reasons why I’m bullish.

New CEO

The central reason I’m optimistic about a turnaround is that Sir Dave Lewis is Diageo’s CEO. Known for taking tough measures to save Tesco, I’m optimistic that he’ll be able to turn this business around over time.

In my experience, investors often under-appreciate the quality (or not) of management. Sometimes, they look at an established business and assume anyone can run it — that Rolls-Royce would be firing on all cylinders with or without CEO Tufan Erginbilgic.

This assumption is wrong, I feel.

Balance sheet

Second, Diageo is improving its balance sheet. In recent years, this has become a problem, with net debt reaching $22.9bn in June 2025.

This translated into a leverage ratio of 3.4 times net debt to adjusted EBITDA. That was up from 2.5 times just three years earlier.

By June this year, however, Diageo had lowered that figure to 3.1, with plans to reach the mid-point of its target leverage range of 2.5 to 3.0 by the middle of next year. This assumes the disposal of the Royal Challengers Bengaluru cricket team in India and East African Breweries.

Strengthening the balance sheet is likely to improve investor sentiment.

Return to growth

That said, cutting costs and disposing of assets will only take you so far. For a lasting share price revival, Diageo will have to start growing again.

This month, we got medium-term guidance here too.

• Low-single-digit organic net sales growth.
• Mid-single-digit organic operating profit growth.

Admittedly, these are hardly barnstorming growth figures, and Diageo might fall short of them if inflation keeps pressure on consumer spending, especially in North America. Changing alcohol consumption patterns also add uncertainty.

But these targets do look achievable and signal that the worst might be over for long-suffering shareholders. Cumulative free cash flow of about $8bn is excepted over three years.

Improving analyst sentiment

The fourth reason is that brokers are starting to change their tune and become cautiously optimistic.

Of course, analysts’ views shouldn’t inform an investment decision one way or the other. But it’s reassuring to see brokers raising their price targets for Diageo recently.

For example, Jefferies upgraded the stock at the start of the week, with a 2,200p target. That’s roughly 26% higher than today, while there are now far more analyst teams who rate the stock as a Buy (15) than a Sell (one).

Starting valuation

Finally, we have quite a low starting valuation. Even after the recent rise — the stock is up nearly 20% since the beginning of July — Diageo is trading at less than 14 times next fiscal year’s forecast earnings.

So, with Diageo now forecasting “attractive EPS [earnings per share] growth ahead of organic operating profit growth” over the medium term, there’s every chance the stock heads higher from here.

For these reasons, I’m bullish on Diageo moving forward. And I think investors should consider it as a potential turnaround stock to tuck away in a portfolio.

Should you invest £5,000 in Diageo Plc right now?

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Ben McPoland owns shares in Diageo and Rolls-Royce.