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.