With a market cap of $46.3 billion, Burlington, Massachusetts-based Keurig Dr Pepper Inc. (KDP) is a leading beverage and coffee company boasting an impressive portfolio of over 125 brands. Catering to a broad spectrum of beverage preferences, some of its renowned brands include Dr Pepper, Green Mountain Coffee Roasters, Snapple, and Mott's.
Shares of the coffee and beverage giant have significantly underperformed the broader market over the past 52 weeks. KDP has gained 4.6% over this time frame, while the broader S&P 500 Index ($SPX) has rallied 27.2%. Meanwhile, in 2024, shares of KDP are up 2.6%, compared to SPX's 10% gains on a YTD basis.
Zooming in further, KDP slightly outpaced the S&P 500 Cons Staples Sector SPDR's (XLP) marginal gains over the past 52 weeks. However, it lagged behind the exchange-traded fund's 7.3% YTD increase.
KDP's underperformance is primarily attributed to declining volume/mix and weak performance in its coffee segment, resulting in subdued returns compared to the broader market. However, the stock surged on April 25 following strong Q1 profits, with shares up 4% by midday, driven by improved profit margins and a record $1.1 billion stock buyback.
For the current fiscal year, ending in December, analysts expect KDP’s EPS to grow by 6.7% to $1.91 on a diluted basis. Moreover, the company has a promising earnings surprise history, surpassing the consensus estimate in each of the last four quarters.
Despite the relative underperformance, the consensus view on the stock is overall bullish. Among the 15 analysts covering the stock, the consensus rating is a “Moderate Buy.” That’s based on eight “Strong Buys,” one “Moderate Buy,” five “Holds,” and one “Strong Sell.”
This configuration has been consistently bullish over the past three months.
On April 26, Wells Fargo & Company (WFC) highlighted the company’s Q1 results as a “turning point.” The optimism is fueled by the expected momentum in the cold beverage and coffee segments throughout this year. The investment bank also pointed out potential financial catalysts, such as debt reduction and share buybacks, that could amplify the company's free cash flow.
Driven by these factors, Wells Fargo reaffirmed its “Overweight” rating on the stock and raised its price target to $39, which implies a 14.1% potential upside from the current price levels.
The mean price target of $35.94 represents a premium of just around 5.2% to KDP's current price levels. However, the Street-high price target of $42 suggests a 22.9% potential upside.
On the date of publication, Anushka Mukherjee did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
