What’s Next For Keurig Dr Pepper Stock After A Mixed Q4?

KDP: Keurig Dr Pepper logo
Keurig Dr Pepper

Keurig Dr Pepper stock (NYSE: KDP) has risen 0.3% in a month, compared with -2.3% returns for the broader S&P500 index. KDP recently reported its Q4 results, with revenue falling in line and earnings slightly below our estimates. After its recent results, we find KDP stock has more room for growth, as discussed below.

Keurig Dr Pepper’s revenue of $3.8 billion reflected a 12% y-o-y rise, aligning with ours and the consensus estimate. The sales growth was driven by a 13.1% favorable net price realization, marginally offset by a 0.7% decline in volume/mix. The company’s earnings of $0.50 per share and adjusted basis was up 11% y-o-y, given the higher sales and about 20 bps rise in adjusted operating margin.

The company expects its net sales to rise 5% and adjusted earnings to be up between 6% and 7% for the full-year 2023. We have updated our model to reflect the latest quarterly results. We forecast 2023 revenue of $15.0 billion, reflecting a 7% y-o-y rise on a reported basis, and adjusted earnings of $1.82 per share, reflecting an 8% y-o-y growth, slightly above the company’s provided guidance. Our forecast considers better price realization while the volume growth may remain tepid in the near term.

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We estimate Keurig Dr Pepper’s Valuation to be around $39 per share, 11% above the current market price of $35. This represents a 22x P/E multiple based on its expected EPS of $1.82 in 2023, compared to the last three-year average of 21x. However, the high-interest rate environment and the economy expected to go into recession don’t bode well for its business. Still, at its current valuation of $35, KDP appears to have more room for growth. It is trading at a low multiple of 19x forward earnings compared to its historical average mentioned above.

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 Feb 2023
MTD [1]
YTD [1]
Total [2]
 KDP Return 0% -1% -61%
 S&P 500 Return -2% 4% 78%
 Trefis Multi-Strategy Portfolio -4% 7% 237%

[1] Month-to-date and year-to-date as of 2/28/2023
[2] Cumulative total returns since the end of 2016

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