After a 3% fall year-to-date, at the current levels, we believe Keurig Dr Pepper stock (NYSE: KDP) has more room for growth. KDP stock fell slightly from $37 in early January to $36 now. The YTD -3% return for KDP marks an outperformance with -20% returns for the broader S&P500 index. Looking at the longer term, KDP stock is up 24% from levels seen in late 2019. This marks an outperformance compared to some of its peers and the broader markets, with Coca-Cola stock rising 13%, PepsiCo stock up 21%, and the S&P 500 index rising 18% over the same period.
This 24% rise for KDP stock since late 2019 was driven by: 1. Keurig Dr Pepper revenue, which grew 16% to $12.9 billion over the last twelve months, compared to $11.1 billion in 2019, 2. the company’s P/S ratio, which rose 8% to 3.9x trailing revenues, from 3.6x in 2019, partly offset by 3. a 1% rise in its total shares outstanding to 1.4 billion currently. This means the company’s revenue per share rose 15% to $9.07 now, compared to $7.91 in 2019.
Keurig Dr Pepper did not see any major impact of the pandemic on its sales, as at-home demand for K-Cups increased due to a sudden surge in at-home consumption. Keurig Dr Pepper has the edge over rivals Coca-Cola and PepsiCo, as its coffee segment continues to grow with people moving away from carbonated drinks and replacing them with beverages like coffee. That said, there are near-term concerns. The company reported a 5.2% decline in its Coffee Systems volume in Q1 2022 due to capacity constraints.
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Keurig Dr Pepper has recently announced its plans to acquire global rights to Atypique – a non-alcoholic, ready-to-drink cocktail brand.  The ready-to-drink market is growing at a fast pace, and with Keurig Dr Pepper’s distribution network, the company can see better sales growth going forward.
While the company has good prospects, it faces headwinds from the current weakness in broader markets. The S&P500 has now entered the bear market territory with rising concerns of slowing economic growth given the high inflation, Fed action, and supply chain disruptions. However, we estimate Keurig Dr Pepper’s valuation to be $43 per share, reflecting an 18% upside from its current market price of $36. At its current levels, KDP stock is trading at 3.7x forward revenues, compared to the last three-year average of 4.0x, implying that there is more room for growth.
While KDP stock has more room for growth, it is helpful to see how Keurig Dr Pepper Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, 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 PepsiCo vs. NVR.
|S&P 500 Return||0%||-21%||69%|
|Trefis Multi-Strategy Portfolio||1%||-26%||193%|
 Month-to-date and year-to-date as of 7/1/2022
 Cumulative total returns since the end of 2016