Diageo (LSE:DGE) shares have quietly climbed 10% over the last two months. While there’s still a long way to go to rebuild the spirits giant’s valuation, this is nonetheless an encouraging sign for long-term investors who have patiently waited through years of drift.

The question now is whether this is a temporary bounce or the opening act of a multi-year recovery. Let’s find out.

What’s Dave Lewis actually been doing?

When Sir Dave Lewis was appointed CEO of Diageo earlier this year, the parallels with his arrival at Tesco back in 2014 were immediately apparent:

• A bloated cost structure.
• A loss of strategic focus.
• A dividend that needed resetting to fund the rebuild.

His playbook at Tesco was methodical and brutally effective – strip out management layers, divest non-core assets, refocus on what the business does best, and let the cash flows recover naturally.

Looking at his early moves at Diageo, it seems he’s applying this same strategy once again.

In the last two months alone, Lewis has initiated the divestment of several underperforming regional spirits brands, begun flattening a middle management structure that had grown unwieldy under the previous regime, and refocused investment behind Diageo’s crown jewels (Johnnie Walker, Guinness, Tanqueray and Don Julio).

Looking back at Tesco, it took Lewis roughly 18 months from appointment before the share price began a sustained multi-year re-rating. So far, we’re only three months into his Diageo journey. So is it too soon to think about buying shares?

Is now the time to consider buying?

Let’s start with the positives. The bull case is rooted in what Diageo still has underneath the strategic noise. The company owns some of the most recognisable premium spirits brands on the planet, with genuine pricing power, a global distribution network, and exposure to the long-term premiumisation trend in emerging markets.

That’s particularly important in regions such as India and Africa, where a growing middle class is trading up to international spirits brands.

With that in mind, analysts at Barclays recently reiterated their Buy recommendation with a 2,320p price target, arguing that Lewis’s early actions demonstrate the kind of operational discipline the business has been missing, and that earnings estimates may be too conservative if the turnaround gains traction.

However, even bulls like Barclays are aware of the risks. Turnarounds of this scale, even under an experienced stewardship, are notoriously difficult to execute.

Diageo still carries significant debt on the balance sheet. And while the company has begun tackling this excessive gearing, there’s no guarantee these efforts will succeed. If consumer spending on premium spirits softens further in key markets such as the US or China, the firm’s recovery could be delayed significantly.

The bottom line

The early signs from Lewis are genuinely encouraging. And for long-term investors, the combination of well-known brands, an experienced turnaround operator, and a share price still well below its historic highs makes Diageo shares a compelling story to follow closely.

I’m not ready to call it a confirmed recovery just yet. But with such a depressed valuation, the risk-to-reward ratio looks very favourable, in my eyes. That’s why I think investors may want to give Diageo shares a closer look.