What’s Driving Growth For Keurig Dr Pepper Stock?

+13.95%
Upside
35.10
Market
40.00
Trefis
KDP: Keurig Dr Pepper logo
KDP
Keurig Dr Pepper

Keurig Dr Pepper stock (NYSE: KDP) has seen a 2% fall this year, far better than the broader S&P500 index, which is down 20%. Looking at the longer term, KDP stock is up 25% from levels seen in late 2019, slightly outperforming the S&P 500 index, up about 18%.

This 25% growth for KDP stock since late 2019 can primarily be attributed to 1. Keurig Dr Pepper’s revenue growth of 23% to $13.6 billion over the last twelve months, compared to $11.1 billion in 2019, 2. a 2% fall in its average total shares outstanding to 1.4 billion, and 3. the company’s P/S ratio rising a modest 0.3% to 3.7x trailing revenues. 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 other beverage companies, including 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 nine months of this year, Keurig Dr Pepper reported a good 10.4% rise in sales, primarily led by better price realization. However, Coffee Systems revenue rose only 2.9% over this period, as better price realization was partly offset by volume/mix decline and forex headwinds. The company’s other segments saw double-digit sales growth. Looking forward, Coffee Systems sales are expected to trend higher with the recent production ramp-up.

Not only has the company been able to grow its sales, but it has also seen its operating margin rise to 26.0% in 2021, vs. 21.3% in 2019, before the pandemic. However, rising costs have resulted in a decline in the company’s operating margins to 16.8% for the last twelve months period. Our Keurig Dr Pepper Operating Income Comparison dashboard has more details.

We estimate Keurig Dr Pepper’s valuation to be $40 per share, reflecting a 10% upside from its current level of $36. KDP stock is currently trading at 19x forward expected earnings of $1.92 on a per-share and adjusted basis for 2023, compared to the last three-year average of 20x, implying that it has some room for growth.

While KDP stock looks like it can see some more gains, it is helpful to see how Keurig Dr Pepper’s 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 at how counter-intuitive the stock valuation is for Globus Medical vs. Keurig Dr Pepper.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Dec 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 KDP Return -6% -2% -60%
 S&P 500 Return -6% -20% 71%
 Trefis Multi-Strategy Portfolio -7% -23% 210%

[1] Month-to-date and year-to-date as of 12/21/2022
[2] Cumulative total returns since the end of 2016

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