KDP Drops 11% In A Day, Time To Buy The Stock?

We believe there is a near-equal mix of good and bad in KDP stock given its overall Moderate operating performance and financial condition. Hence, together with its High valuation, this makes the stock look Risky. Here is our multi-factor assessment.

But no matter how attractive, investing in a single stock carries high risk. Trefis High Quality Portfolio and is designed to reduce stock-specific risk while giving upside exposure

Let’s get into details of each of the assessed factors but before that, for quick background: With $42 Bil in market cap, Keurig Dr Pepper provides beverages globally through coffee systems, packaged drinks, concentrates, and Latin America segments, serving retailers, bottlers, distributors, restaurants, hotels, and consumers.

[1] Valuation Looks High

This table highlights how KDP is valued vs broader market. For more details see: KDP Valuation Ratios

[2] Growth Is Moderate

• Keurig Dr Pepper has seen its top line grow at an average rate of 5.9% over the last 3 years
• Its revenues have grown 4.6% from $15 Bil to $16 Bil in the last 12 months
• Also, its quarterly revenues grew 6.1% to $4.2 Bil in the most recent quarter from $3.9 Bil a year ago.

This table highlights how KDP is growing vs broader market. For more details see: KDP Revenue Comparison

[3] Profitability Appears Moderate

• KDP last 12 month operating income was $3.4 Bil representing operating margin of 21.5%
• With cash flow margin of 13.4%, it generated nearly $2.1 Bil in operating cash flow over this period
• For the same period, KDP generated nearly $1.5 Bil in net income, suggesting net margin of about 9.7%

This table highlights how KDP profitability vs broader market. For more details see: KDP Operating Income Comparison

[4] Financial Stability Looks Weak

• KDP Debt was $18 Bil at the end of the most recent quarter, while its current Market Cap is $42 Bil. This implies Debt-to-Equity Ratio of 41.7%
• KDP Cash (including cash equivalents) makes up $509 Mil of $54 Bil in total Assets. This yields a Cash-to-Assets Ratio of 0.9%

[4] Downturn Resilience Is Moderate

KDP saw an impact slightly better than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• KDP stock fell 30.4% from a high of $40.08 on 16 August 2022 to $27.90 on 12 October 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $38.01 on 23 September 2024 , and currently trades at $31.10

 
2020 Covid Pandemic

• KDP stock fell 33.6% from a high of $29.50 on 21 February 2020 to $19.60 on 16 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 16 July 2020

 
2008 Global Financial Crisis

• KDP stock fell 55.1% from a high of $26.52 on 12 September 2008 to $11.90 on 9 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 20 August 2009

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read KDP Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.