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Keurig Dr Pepper Inc KDP

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Morningstar’s Analysis

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Keurig Dr Pepper Continues to Execute With Wind at Its Back, but Shares Priced for Perfection

Analyst Note

| Nicholas Johnson, CFA |

Keurig Dr Pepper’s shares were on a tear heading into first-quarter earnings, ostensibly due to a recent influx of liquidity (spurred by majority owner JAB Holdings culling its stake through secondary offerings). The narrow-moat firm has accumulated quite a few bulls lately, and much to their delight, it backed up the increasingly favorable liquidity narrative with a solid fundamental showing, as results were ahead of FactSet consensus on both the top and bottom lines. Commercial momentum also compelled management to raise its full-year organic sales growth target to 4%-6% from 3%-4%. As we incorporate this rosier near-term outlook into our model, we plan to raise our $28.50 fair value estimate by a mid- to high-single-digit percentage. Still, the near-term momentum does not imbue us with any more optimism about current valuation levels. We remain adamant that the shares are overvalued and believe investors should remain on the sidelines.

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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.

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