Is INTU A Better Pick Over Keurig Dr Pepper Stock?

KDP: Keurig Dr Pepper logo
Keurig Dr Pepper

We believe that Intuit stock (NASDAQ: INTU), a company that specializes in financial and tax preparation software, and is included in the S&P500 index, is a better pick than Keurig Dr Pepper stock (NASDAQ: KDP), also in the S&P500, given its better prospects. Although these companies are from different sectors, we compare them because they have a similar revenue base of $14 billion and a similar operating income of $2.5 billion to $3.0 billion. The decision to invest often comes down to finding the best stocks within the parameters of certain characteristics that suit an investment style. The size of profits can matter, as larger profits can imply greater market power.

Since these stocks are from different sectors, comparing P/S against one another may not be helpful. We compare their current multiples with the historical ones in the sections below to better understand their valuations. Looking at stock returns, INTU has fared better, with 16% returns this year, aligning with the returns for the broader S&P500 index, while KDP stock is down 10%. There is more to the comparison, and in the sections below, we discuss why we believe Intuit will offer higher returns than Keurig Dr Pepper in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Keurig Dr Pepper vs. InuitWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Intuit’s Revenue Growth Is Better

  • Intuit’s 23.6% average annual revenue growth rate in the last three years is much better than 8.2% for Keurig Dr Pepper.
  • If we look at the last twelve months, Keurig Dr Pepper’s 11.5% revenue growth fares better than 9.3% for Intuit.
  • 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.
  • The company has the edge over other beverage companies as its coffee segment continues to grow, with people moving away from carbonated drinks and replacing them with other beverages.
  • The strong revenue growth in the last twelve months can be attributed to better price realization.
  • For Intuit, the strong revenue growth over the recent past can be attributed to a 2x rise in total customer base from 50 million in 2019 to 100 million in 2022.
  • There has been a rise in more people and small businesses opting to file tax returns on their own rather than visiting an accountant, especially since the beginning of the Covid-19 pandemic.
  • Furthermore, in Q2FY21, the company acquired Credit Karma (now a separate reportable segment), which garnered $1.8 billion in revenue in FY22. The segment offers personalized recommendations of credit card, home, auto, and personal loans, and insurance products, among others, to its customers. It generates revenue from cost-per-action transactions related to credit card issuances and private loan funding.
  • Our Keurig Dr Pepper Revenue Comparison and Intuit Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, Intuit’s revenue is expected to grow faster than Keurig Dr Pepper’s over the next three years, based on Trefis Machine Learning analysis.
  • Note that we have different methodologies for companies negatively impacted by Covid and those not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to predict recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
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2. Intuit Is More Profitable

  • Keurig Dr Pepper’s operating margin has contracted from 21% in 2019 to 17% in 2022, while Intuit’s operating margin declined from 27% to 20% over this period.
  • Also, looking at the last twelve-month period, Intuit’s operating margin of 22% fares better than 11% for Keurig Dr Pepper.
  • Our Keurig Dr Pepper Operating Income Comparison and Intuit Operating Income Comparison dashboards have more details.
  • Intuit’s 32% free cash flow margin is better than 16% for Keurig Dr Pepper.
  • Looking at financial risk, Intuit fares better, with its 5% debt as a percentage of equity lower than 27% for Keurig Dr Pepper and its 13% cash as a percentage of assets higher than 1% for the latter, implying that Intuit has a better debt position and more cash cushion.

3. The Net of It All

  • We see that Intuit has seen better revenue growth, is more profitable, and has a better debt position and more cash cushion. To some extent, this also explains its higher P/S multiple of 9x sales compared to 4x for Keurig Dr Pepper.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Intuit is the better choice of the two.
  • If we compare the current valuation multiples to the historical averages, Intuit fares better, with its stock currently trading at 9x revenues vs. the last three-year average of 14x. In contrast, Keurig Dr Pepper stock trades at 3.2x revenues vs. its last five-year average of 4.1x.
  • Our Keurig Dr Pepper Valuation Ratios Comparison and Intuit Valuation Ratios Comparison offers more details.
  • The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 8% for KDP over this period vs. a 45% expected return for Intuit, based on Trefis Machine Learning analysis – Keurig Dr Pepper vs. Intuit– which also provides more details on how we arrive at these numbers.

While INTU may outperform KDP in the next three years, 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.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.

Returns Jul 2023
MTD [1]
YTD [1]
Total [2]
KDP Return 3% -10% -64%
INTU Return -1% 16% 294%
S&P 500 Return 0% 16% 99%
Trefis Multi-Strategy Portfolio -1% 17% 278%

[1] Month-to-date and year-to-date as of 7/7/2023
[2] Cumulative total returns since the end of 2016

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