Sep 24, 2020
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Keurig Dr Pepper To Rise 15%

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BRAZIL – 2020/07/13: During this photo illustration the Keurig Dr Pepper logo seen displayed on a. [+] SOPA IMAGES/LIGHTROCKET VIA GETTY IMAGES Despite almost a 45% rise since the March lows of this year on the current price of around $28 per share we believe Keurig Dr Pepper stock (NYSE: KDP) remains undervalued

 

KDP stock has increased from under $20 to a bit over $28 off the new bottom slightly under the S&P which increased by 50% from its recent lows. Despite the fact that the stock is around 15% above the extent at which it was on the end of 2018 it really is still under its pre-Covid (February 2020) high of $29

 

50. We believe that KDP s stock could rise by about 15% from its current level driven by expectations of rising demand and easing of supply constraints following the gradual lifting of lockdowns. Our dashboard What Factors Drove 15% Change In Keurig Dr Pepper Stock Between 2018 And Now? has the underlying numbers

 

A number of the stock price rise between 2018 and 2019 is justified by the 50% rise in KDP s revenues. This rise was mainly by way of the acquisition of Dr Pepper Snapple by Keurig Green Mountain which led to the formation of Keurig Dr Pepper. This effect was further accentuated by a 43% rise in net income margin which increased from 7

 

9% in 2018 to 11. 3% in 2019. On a per share basis earnings increased 65% from $0. 54 to $0. 89 as shares outstanding also increased by way of shares of both companies being combined. KDP s P/E multiple dropped sharply from 46x to 32x during this period. This was not by way of a metamorphosis in company s fundamentals but by way of the sharp rise inside the EPS following the acquisition

 

Stock price increased only at a modest rate between December 2018 and December 2019 because the effect of the acquisition was accounted for in the price resulting in a drop in P/E. Despite the coronavirus pandemic hitting the realm in 2020 KDP has been almost immune to the current crisis as is reflected in its current P/E multiple of 32x corresponding to the 2019 level

 

Where is the stock headed? The worldwide spread of coronavirus in early 2020 affected industrial and economic activity which affected consumption and consumer spending. However KDP has not been affected much by the pandemic. This was evident from the recently released Q2 2020 results for the company. Keurig Dr Pepper s revenues came in at $2

 

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Hardly 13% of KDP s total revenues comes from concentrates (which are sold to affiliates that manufacture syrups utilized in fountain drinks). Quarantine and residential confinement are translating right into a steep slide in fountain sales and a corresponding decline favourite for concentrates. But KDP which derives 44% of its revenue from bottled beverages (ending up in grocery and convenience stores) and 38% of sales from Keurig brewing systems and K-Cups is benefiting directly from the sudden surge in at-home consumption with manageable exposure to decreased concentrate sales

 

With people moving far from carbonated drinks and replacing an analogous with beverages like coffee KDP has an edge over rivals Coca-Cola and PepsiCo as its coffee segment (38% revenue share) will see growth as working at home by millions of people will benefit the corporate s direct and licensed K-Cup coffee sales

 

Also KDP s revenue is targeted in the U. S. and Canada with its only international division – Latin America – making up only 5% of revenue. This has helped KDP to suffer less from global supply-chain disruptions by way of Covid-19 versus companies like Coca-Cola which have a world distribution system. As the worldwide lockdowns are gradually lifted the corporate s business is anticipated to grow even faster as demand is anticipated to choose up

 

Also the management reaffirmed its full year 2020 outlook. The corporate has outperformed its peers inside the food & beverage industry and investors focus has shifted to 2021 numbers. Thus continued revenue and earnings growth with an elevated P/E multiple is prone to bring about a couple of 15% rise in KDP s stock

 

As per Trefis analysis Keurig Dr Pepper valuation works out to $33 per share. For further insight in to the food and beverage industry see why we feel Keurig Dr Pepper is healthier placed when compared with Coca-Cola while you may see a comparative analysis of PepsiCo vs. Coca-Cola What in case you re searching for a more balanced portfolio instead? Here s a good quality portfolio to beat the market with over 100% return since 2016 versus 55% for the S&P 500

 

Created from companies with strong revenue growth healthy profits a lot of cash and low risk it has outperformed the broader market year after year consistently. See all Trefis Price Estimates and Download Trefis Data here What s behind Trefis? See How It s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product R&D and Marketing Teams

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