Diageo (LSE: DGE) shares are a reminder that even the biggest FTSE 100 names can take a beating. But they can also bounce back. For the last couple of years, the drinks giant has looked like one of the most compelling recovery plays on the index. Is its long-awaited comeback about to begin?

For years, Diageo looked like a no-brainer buy, with an enviable portfolio of global brands, including Johnnie Walker, Baileys, Smirnoff, Tanqueray and Guinness. It boasts huge diversification too, selling more than 200 brands across 180 countries.

That worked brilliantly, until it didn’t. The shares were hit by a profit warning in November 2023, triggered by falling sales in Latin America and the Caribbean, compounded by inventory issues.

Big FTSE 100 faller

Rather than a blip, it proved a warning shot. Other markets struggled too, as inflation surged and consumers traded down from Diageo’s premium and ultra-premium brands, or simply cut back. It’s also been hit by one-offs as US tariffs hit exports of Canadian whisky and its key Mexican tequila brand Don Julio. There are structural concerns too: younger people appear to be drinking less, while GLP-1 weight-loss drugs were seen as denting demand further. In short, it’s been under fire on all fronts.

The scale of the task called for ‘Drastic’ Dave Lewis, best known for turning around Tesco in its darkest hour. Sir Dave took over in January amid high investor hopes. However, these were dented on 25 February when he reported falling sales in North America and Asia Pacific, a $200m drop in free cash flow to $1.5bn, and stubbornly high net debt of $21.7bn.

Markets should have expected this. At Tesco, Lewis used the classic ‘kitchen sink’ approach, where a new CEO gets all the bad news out early, resets expectations, and create a lower base for recovery. He also halved Diageo’s dividend. That was a blow to long-term investors like me, but should free up around $1bn to help tackle that debt.

Lewis is doing what we’d expect: accelerating the $625m cost-cutting plan, simplifying management and selling non-core brands to raise cash. He’s also rebalancing the portfolio towards more affordable options and using AI to cut marketing spend. There’s less he can do about generational shifts in drinking habits or the potential impact of weight-loss drugs. But his track record suggests he’ll act decisively where he can.

Should I buy this stock today?

The share price has plunged 27% over one year and almost 55% over five. Given that horror show, the forward price-to-earnings ratio of 13.4 could have been even lower. Ignore any websites showing a yield of 5.2%. It’s now half that.

It’s still early days in the Lewis era. It took around 18 months before Tesco shares responded to his efforts. Diageo is one of the worst performers in my SIPP. But hope springs eternal and I still think its shares are worth considering today. We may get a better idea when the Q3 trading update lands on 6 May. That date is in my diary.

I still see Diageo as one of the more intriguing recovery plays on the FTSE 100. Darkest before the dawn and all that. But given recent stock market volatility, there are plenty of alternatives to consider too.