Despite a 1% fall in Keurig Dr Pepper stock (NYSE: KDP) this year, underperforming the broader S&P500 index, which is up 8%, we believe it has little room for growth. Looking at a slightly longer term, KDP stock is up 22% from levels seen in late 2019. This can be attributed to 1. Keurig Dr Pepper’s revenue growth of 26% to $14.1 billion over the last twelve months, compared to $11.1 billion in 2019, 2. a 0.2% fall in its average total shares outstanding to 1.4 billion, partly offset by 3. the company’s P/S ratio falling a modest 3.5% to 3.5x trailing revenues. Our dashboard on Why Keurig Dr Pepper Stock Moved has more details.
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. Keurig Dr Pepper reported a good 10.8% rise in sales in 2022, primarily led by better price realization, contributing 10.6% growth, while volume/mix grew 0.5%, partly offset by 0.3% forex translation. Looking forward, Coffee Systems sales are expected to trend higher with the production ramp-up. We forecast the company’s overall sales to grow at a 5% annual rate for the next three years.
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Although the company has been able to grow its sales, its operating margin has contracted to 22.2% in 2022, vs. 27.2% in 2019, due to rising costs. Our Keurig Dr Pepper Operating Income Comparison dashboard has more details. We estimate Keurig Dr Pepper’s valuation to be $39 per share, reflecting an 11% upside from its current level of $35. KDP stock is currently trading at 19x forward expected earnings of $1.82 on a per-share and adjusted basis for 2023, compared to the last three-year average of 20x, implying little room for growth.
While KDP stock has little room for growth, 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.
|S&P 500 Return||1%||8%||85%|
|Trefis Multi-Strategy Portfolio||2%||10%||246%|
 Month-to-date and year-to-date as of 4/18/2023
 Cumulative total returns since the end of 2016