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Keurig Dr Pepper Inc KDP

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Keurig Dr Pepper Increases Long-Term Sales Expectations, but Upside Already Reflected in Shares

Analyst Note

| Rebecca Scheuneman, CFA |

As we anticipated, narrow-moat Keurig Dr Pepper increased its long-term organic sales expectations at its investor day meeting, to mid-single-digit growth from 2%-3% previously. As our model already incorporates 4% average annual organic sales growth over the next five years, we do not expect a material change to our $30.50 fair value estimate, leaving the shares modestly overvalued. We also remain comfortable with our five-year average annual earnings per share growth of 8.5%, which aligns with management’s high-single-digit guidance. We expect operating margins to exceed 26% by 2025, up from 21% in 2020, as supply chain productivity, more favorable raw material procurement, and administrative cost savings should more than offset negative product mix and pricing moderation in company-owned brands. In the near term, like its peers, Keurig Dr Pepper is experiencing steep inflation in materials, labor, and transportation, which it should fully offset in time with price increases, efficiency savings, and revenue management tools. Even so, delays in the implementation of these mitigating factors could lead to near-term margin volatility.

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Company Profile

Business Description

Keurig Dr Pepper, the product of a 2018 merger between Dr Pepper Snapple and Keurig Green Mountain, is the third- largest nonalcoholic beverage company in North America. In addition to the eponyms, the firm's flagship brands include 7UP, Canada Dry, Schweppes, Mott's, and Bai. The company situates itself at different positions of the value chain depending on the segment (it reports four operating segments) and the product. It is primarily a brand owner in its beverage concentrates and Latin America beverages segments, as well as for the single-serve brewers within its coffee systems segment, and owns integrated production and distribution operations in its packaged beverages segment as well as for its K-cup pods.

Contact
53 South Avenue
Burlington, MA, 01803
T +1 781 418-7000
Sector Consumer Defensive
Industry Beverages - Non-Alcoholic
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Aggressive Growth
Employees 27,000

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