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Keurig Dr Pepper Inc KDP

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Economic Moat




Keurig Dr Pepper’s Hot Beverage Portfolio Impresses in 2Q, but Valuation Leaves Us Feeling Cold

Nicholas Johnson Equity Analyst

Analyst Note

| Nicholas Johnson |

As narrow-moat Keurig Dr Pepper’s coffee ecosystem has proven to be well suited to a year defined by limited consumer mobility, its share price has responded in kind, up almost 60% from March lows. Investors had high expectations for the portfolio heading into its second-quarter earnings print, and the results (modest top- and bottom-line beats relative to CapIQ consensus) evinced management’s continued execution within a rapidly evolving marketplace. We plan to raise our fair value estimate to $27 from $26 to reflect the time value of money and a slightly stronger 2020. Nevertheless, our constructive view on growth (over 3% longer term) and margins (400 basis points of expansion) notwithstanding, the valuations continues to strike us as stretched.

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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. In terms of the value chain, the company situates itself at different positions 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 brewing machines 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.

53 South Avenue
Burlington, MA, 01803
T +1 802 244-5621
Sector Consumer Defensive
Industry Beverages - Non-Alcoholic
Most Recent Earnings Jun 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type High Yield
Employees 25,500