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.