European spirit producers are preparing for the potential fallout of new US tariffs, which could pose a serious challenge to their businesses.
However, while analysts at Berenberg acknowledge the risks, they argue that leading companies in the sector remain in a strong position to weather the storm.
They said although the proposed duties could have a significant impact, major spirits producers have already priced in much of the potential downside.
“Large spirit makers in Europe are in a robust position to face US tariffs, even though they pose a serious concern,” Berenberg analysts Javier Lastra and Craig Sinclair say in a note.
“Spirit stocks have come down to levels that already discount quite negative scenarios,” they said, adding that Diageo and Pernod Ricard offer the most attractive profiles in this backdrop.
“However, the tariff threat shouldn’t be underestimated as a 200% duty could basically kill an import-spirit business,” the analysts added.
The possibility of a 200% tariff on European alcohol imports, recently floated by US President Donald Trump, has sent ripples through the market.
Trump’s threat came as a countermeasure to the European Union’s planned tariff hike on American whiskey and other products.
Liquor stocks under pressure, beer and soft drinks relatively insulated
Following Trump’s announcement, shares of prominent European beverage companies faced immediate pressure.
French spirits groups Pernod Ricard and Rémy Cointreau saw declines, while Italian drinks maker Davide Campari also took a hit.
Luxury giant LVMH, which owns Moët & Chandon and Hennessy, as well as British multinational Diageo, experienced more modest dips.
The Berenberg analysts noted that beer and soft drinks industries are relatively insulated from the impact of tariffs.
Unlike the spirits sector, these industries tend to recover more quickly from cyclical downturns.
As a result, the bank’s top pick among brewers is Heineken, while it also sees upside potential for AB InBev and Molson Coors.
In the soft drinks space, Coca-Cola Hellenic emerged as a standout, earning a Buy rating from the firm.
Tariff uncertainty a risk factor for Diageo (DGE), but gains outweigh risks
On Wednesday, Berenberg initiated coverage on Diageo with a Buy rating and a price target of 23.72 GBP, a more than 15% upside to its share price on Wednesday.
The firm’s analysis suggests that the company’s recent decline—down more than 5% in the past month—offers an attractive entry point for investors.
Despite concerns over rising US bond yields and trade uncertainties, Diageo’s strong global presence and superior return on invested capital (ROIC) justify its valuation premium over competitors such as Pernod Ricard.
The report also examined the tariff concerns, recognizing them as notable challenges but not insurmountable for Diageo.
Berenberg’s analysts consider the uncertainty surrounding tariffs a risk factor, yet they believe the potential gains for investors in Diageo’s stock outweigh these concerns at this stage.
Pernod Ricard’s valuation compelling despite tariff uncertainty
Berenberg also initiated coverage on Pernod Ricard (EPA:PERP) SA (RI:FP) (OTC: PDRDY) with a Buy rating and a price target of EUR 114.00.
The decision follows the company’s recent withdrawal of its mid-term guidance for 4-7% average top-line growth in its H1 FY25 results, a move echoed by competitor Diageo and described by some analysts as a “clearing event.”
Berenberg notes that Pernod Ricard’s current valuation already reflects a substantial portion of the tariff risks.
The firm suggests that any resolution on tariffs could help restore the stock to a more typical valuation in the short term.
Currently, Pernod Ricard is trading at an FY26E EV/EBITA multiple of 12.0 times, or 12.9 times when factoring in tariff-related impacts—below its 20-year historical average of 14.0 times.
Despite lingering uncertainty over trade policies, Berenberg views Pernod Ricard’s valuation as compelling.
With much of the tariff risk already accounted for in the share price, the firm sees an attractive risk-reward balance for investors looking at the stock.
Caution for Davide Campari-Milano due to reliance on international markets
Meanwhile, Berenberg initiated a Hold rating on Davide Campari-Milano, setting a price target of €6.30.
The firm remains cautious on Campari’s outlook due to its reliance on key international markets.
With approximately 25% of its net sales at risk from trade tariffs, Campari could face headwinds if new duties are implemented.
However, the analysts also point out that if trade tensions ease, the company could benefit from a substantial revaluation.
Tariff concerns loom, but sector remains attractive
While the proposed tariffs remain a significant risk factor, Berenberg analysts suggest that investors should not overreact.
Large spirits makers such as Diageo and Pernod Ricard have diversified operations and extensive global footprints that allow them to mitigate potential losses.
Nonetheless, the analysts warn that a 200% duty could be devastating for some import-dependent businesses, making it a key issue to watch.
Berenberg’s report underscores the importance of monitoring ongoing trade negotiations between the US and the EU.
If tariffs are ultimately imposed, companies with high exposure to the US market may need to adapt by shifting production or exploring alternative revenue streams.
Until then, the sector remains a mix of risks and opportunities, with well-positioned firms likely to emerge stronger in the long run.
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