We think that Keurig Dr Pepper stock (NYSE: KDP) currently is a better pick compared to Booking Holdings stock (NASDAQ: BKNG), given its better prospects and a comparatively lower valuation. KDP stock is trading at 3.9x trailing revenues, compared to 7.2x for Booking Holdings. Although these two companies are from different industries, we compare them due to their similar revenue base.
If we look at stock returns, Booking Holdings’ -3% return is better than a -6% change for KDP stock over the last twelve months. This compares with a -3% change in the broader S&P 500 index. While both the companies are likely to see stock price appreciation, KDP is expected to outperform.
There is more to the comparison, and in the sections below, we discuss why we believe that KDP stock will offer better returns than BKNG stock in the next three years. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis of Keurig Dr Pepper vs. Booking Holdings: Which Stock Is A Better Bet? Parts of the analysis are summarized below.
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1. Keurig Dr Pepper’s Revenue Growth Has Been Better Over The Recent Years
- Booking Holdings’ revenue growth of 122% over the last twelve months is much higher than just 8% for Keurig Dr Pepper.
- However, if we look at a longer time frame, Keurig Dr Pepper has outperformed with its sales growing 3x to $12.7 billion in 2021, compared to $4.1 billion in 2018, while that of Booking Holdings declined 24% to $11.0 billion in 2021, compared to $14.5 billion in 2018.
- The significant 3x growth in Keurig Dr Pepper revenues can be attributed to the merger between Keurig Green Mountain and Dr Pepper Snapple Group in mid-2018. Keurig Dr Pepper did not see any major impact of the pandemic on its sales, as at-home demand for K-Cups increased.
- The company 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, which benefited directly from the sudden surge in at-home consumption during the pandemic. Concentrates, which are sold to affiliates that manufacture syrups used in fountain drinks, account for 13% of its total sales, with its only international division – Latin America – making up for 5% of revenue.
- Booking Holdings’ revenue growth was significantly impacted amid lockdowns and shelter-in-place restrictions during the pandemic. The 2020 sales plunged 54% to $6.8 billion from $15.1 billion in 2019.
- With economies opening up globally, travel has picked up pace, resulting in a sharp 122% spike in Booking Holdings’ sales over the last twelve months.
- That said, Booking Holdings derives a majority of its revenue from the European market, which has undertaken a series of economic measures in response to Russia’s invasion of Ukraine. A decline in travelers from Russia, who are currently under a ban, is likely to have a modest impact on Booking Holdings’ business.
- Our Keurig Dr Pepper Revenue and Booking Holdings Revenue dashboards provide more insight into the companies’ sales.
- Looking forward, Keurig Dr Pepper revenue growth over the next three years is expected to be better than Booking Holdings. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 22% for Keurig Dr Pepper, compared to a 10% CAGR for Booking Holdings, based on Trefis Machine Learning analysis.
- Note that we have different methodologies for companies that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
2. Booking Holdings Is More Profitable And It Offers Lower Risk
- Booking Holdings operating margin of 26% over the last twelve-month period is much better than just 6% for Keurig Dr Pepper.
- This compares with 37% and 21% figures seen in 2019, before the pandemic, respectively.
- Booking Holdings’ free cash flow margin of 38% is better than 23% for Keurig Dr Pepper.
- Our Keurig Dr Pepper Operating Income and Booking Holdings Operating Income dashboards have more details.
- Looking at financial risk, Booking Holdings is better placed among the two. Its debt as a percentage of equity of 10% is much lower than 46% for Keurig Dr Pepper, while its 47% cash as a percentage of assets is higher than the 1% for the latter, implying that Booking Holdings has a better debt position and has more cash cushion.
3. The Net of It All
- We see that Keurig Dr Pepper has demonstrated better revenue growth over the recent years and it is available at a comparatively lower valuation. On the other hand, Booking Holdings is more profitable and it comes with lower financial risk, explaining the difference in valuation of these two companies.
- Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Keurig Dr Pepper is currently the better choice of the two.
- The table below summarizes our revenue and return expectations for Keurig Dr Pepper and Booking Holdings over the next three years and points to an expected return of 82% for KDP over this period vs. a 19% expected return for BKNG stock, implying that investors are better off buying KDP over BKNG, based on Trefis Machine Learning analysis – Keurig Dr Pepper vs. Booking Holdings – which also provides more details on how we arrive at these numbers.
While KDP stock may outperform BKNG, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Keurig Dr Pepper vs. Regeneron Pharmaceuticals.
|S&P 500 Return||-1%||-14%||83%|
|Trefis Multi-Strategy Portfolio||0%||-19%||219%|
 Month-to-date and year-to-date as of 6/2/2022
 Cumulative total returns since the end of 2016