Shares of the world’s largest spirits maker, Diageo PLC (DEO), have jumped about 12% in 2017. Investors are now considering whether the London-based alcoholic beverage company’s recent transformation initiative, in which it aimed to shape up after management team revamps, performance improvement measures and cost cutting plans, is finally being priced into the company’s stock.

Analysts Optimistic 

The British spirits and beer producer seemed to be on the right track after posting its best financial results in three years in late January. Revived demand for bourbon, scotch and tequila in the U.S., along with growth in the firm’s scotch segment in emerging markets, helped Diageo beat Wall Street’s estimates in the interim report. For the six-month period ended Dec. 31, net profit of 1.51 billion pounds ($1.9 billion USD) reflected a 7% increase over last year, while net sales increased 4% on an organic basis and 15% on a reported basis to 6.42 billion pounds ($8.05 billion). In the U.S., the firm’s most profitable market, organic sales jumped 3.6% over the same period last year. While Brexit’s effect on the pound made Diageo’s exports cheaper abroad, Diageo Chief Executive Officer Ivan Mendez told Bloomberg he is confident that the firm will continue to perform independent of currency. (See also: Diageo Targets Booming Indian Market.)

Alongside an executive team and board of directors shake-up, analyst foresee the appointment of Diageo’s new chairman, announced in May 2016, bringing on more positive changes. Javier Ferrán comes to the firm with experience across the consumer segment and private equity space, most recently serving at Bacardi as president and CEO. While a data-driven sales focus resulted in the firm taking a hit on revenues in 2014 and 2015, analysts foresee the change resulting in a smoother business and a higher stock price as sales become more consistent.

Janus Capital analyst Greg Kuczynski speaks to the measure’s upside as providing Diageo with real-time data in order to speed up forecasting, decision making and innovation. However, the analyst says that in light of the change, many investment shops “probably turned away from a company like Diageo because they just don’t want to have exposure to the stocking and destocking cycles which can be so painful.” Diageo’s major shareholders, including Janus Capital, clearly see the move’s advantages as outrunning downside, indicating that the data has boosted products’ time to market and enhanced results of Johnnie Walker’s limited editions experiments.

Bears: ‘Investors, Don’t Get Carried Away’

Analysts such as Liberum’s Alicia Forry are less optimistic, warning that investors “should not get carried away” after Diageo’s interim report on Jan. 26. Forry downgraded DEO to sell in January, indicating that the company’s improvement has already been priced into its stock. The analyst highlighted downside in Diageo’s lackluster beer and vodka sales with its iconic Guinness stout and Smirnoff products attributing to flat growth and a 2% decline respectively in the most recent period. Further, while the British spirits maker saw its bourbon business boom nearly 30% in the first half of the year, analysts note that Diageo’s overall position in the high-growth market remains relatively small compared to rivals such as Kentucky-based Brown-Forman Corp. (BF-B).

On Friday, analysts at Goldman Sachs downgraded DEO to sell from neutral, highlighting negative headwinds from a slowdown in the U.S. spirits market and pricing pressures taking as taking a hit to growth prospects.

Better Off Alone?

Moving ahead, analysts speculate Diageo could benefit from a sell-off its beer division in order to focus solely on spirits after the spinoff​ of its wine business in 2015.

“Companies do not change overnight, however we think Diageo could start to look different,” said Jefferies analyst Edward Mundy, who foresees more cost-cutting and M&A activity around a possible Moët Hennessy acquisition as providing upside for the global spirits leader. (See also: Diageo Considers Opening Guinness Factory in US.)

Shares of Diageo, closing down about 0.5% on Friday at $115.58, have gained about 7% in the last 12 months, and are trading at a price to earnings ratio of 25.4, giving the company a market cap of about $72.4 billion. DEO’s U.S.-based rival Constellation Brands Inc. (STZ), is also up about 7% from a year ago, trading at $162.07 per share or 26.33 times earnings and with a market cap of $31.72 billion. Analysts’ one-year target estimate on DEO stock remains at $122.14, representing a 5.7% upside from Friday close.  

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