Keurig Dr Pepper stock (NYSE: KDP) has seen a 0% rise this year, significantly outperforming the broader S&P500 index, down 23%. Even if we look at the longer term, KDP stock, with 27% returns from levels seen in late 2019, has outperformed the S&P 500 index, up around 13%. However, KDP stock now looks fairly valued at around $37, as discussed below.
This 27% rise for KDP stock since late 2019 can primarily be attributed to 1. Keurig Dr Pepper’s revenue rising 17% to $13 billion over the last twelve months, compared to $11 billion in 2019, 2. a 10% rise in the company’s P/S ratio to 4.0x trailing revenues currently, compared to 3.7x in 2019, partly offset by 3. a 1.3% rise in its total shares outstanding to 1.4 billion. The increase in revenue and a rise in shares outstanding has meant that Keurig Dr Pepper’s revenue per share rose 16% to $9.13 over the last twelve months, vs. $7.89 in 2019. Our dashboard on Why Keurig Dr Pepper Stock Moved has more details.
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Keurig Dr Pepper did not see any significant 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. For the first half of this year, Coffee Systems revenue rose 2% as better price realization was partly offset by volume/mix decline and forex headwinds.
Rising costs have resulted in a slight decline in the company’s operating margins to 21.0% for the last twelve months, compared to 26.0% in 2021 and 21.3% in 2019. Our Keurig Dr Pepper Operating Income Comparison dashboard has more details.
Looking forward, the demand for K-Cups is expected to remain steady, and we forecast the top-line to grow 10.5% to $14 billion in 2022. Assuming the current share count of 1.4 billion (reported for Q2 2022), we arrive at the expected revenue per share of $9.89 for the full year 2022. Now, at its current levels, KDP stock is trading at 3.7x forward expected revenues, aligning with its last three-year average of 3.6x, implying that it is fairly priced. Also, KDP stock faces headwinds from the current weakness in broader markets. The S&P500 is in bear market territory with concerns over higher inflation, rising interest rates, a strengthening dollar, and slowing economic growth. Our dashboard on Keurig Dr Pepper’s valuation has more details.
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 by how counter-intuitive the stock valuation is for PepsiCo vs. Progress Software.
|S&P 500 Return||3%||-23%||64%|
|Trefis Multi-Strategy Portfolio||3%||-24%||199%|
 Month-to-date and year-to-date as of 10/4/2022
 Cumulative total returns since the end of 2016