Skip to Content
Stock Analyst Update

Dr Pepper Snapple-Keurig Union Should Brew Up Results

We appreciate the strategic rationale of the tie-up, from both a distribution and product mix perspective.


We’re placing our fair value estimate for wide-moat  Dr Pepper Snapple (DPS) under review as we further evaluate the impact of the firm’s plan to merge with Keurig Green Mountain (which has been held privately by JAB Holding Company since March 2016), but we surmise the combination is a plus for Dr Pepper shareholders that will likely lead to a more than 10% increase to our valuation (which for the standalone business stands at $92 presently). However, with shares up 25% on the announcement, we don’t think the stock represents an attractive risk/reward opportunity at current levels.

The transaction is expected to close in the second quarter of 2018, after which Dr Pepper shareholders will receive a special dividend of $103.75 and in aggregate will own 13% of the shares of the combined entity. The combined firm, Keurig Dr Pepper, will have annual revenues around $11 billion (versus our $6.7 billion expectation for Dr Pepper in fiscal 2017), which remains materially below those of key competitors Coca-Cola ($42 billion in sales in fiscal 2016) and Pepsi ($63 billion in fiscal 2016). We view the special dividend to be a sufficient, guaranteed return to shareholders (representing an 8% premium to the stock’s last closing price), and appreciate the strategic rationale of the tie up, from both a distribution and product mix (lessened exposure to carbonated soft drinks, which we estimate accounts for 80% of its volume, versus 60%-70% for Coca-Cola and Pepsi’s beverage business) perspective.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Sonia Vora does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.