Keurig Dr Pepper Inc KDP is poised to generate sector leading mid-teens EPS growth through 2021, backed by merger synergies, according to BMO Capital Markets.
The Analyst
BMO’s Amit Sharma maintained an Outperform rating on Keurig Dr Pepper with a price target of $34.
The Thesis
Market sentiment for Keurig Dr Pepper’s legacy Ready to Drink (RTD) beverage portfolio continues to be “unnecessarily weak,” with investors focusing on coffee, Sharma said in the note.
He added that the company’s RTD business had “ingrained structural advantages” and was much larger than its other segments.
Consensus estimates of 4.5% EBIT growth through 2021 implies only a 150 basis point improvement from the average growth generated by the company from 2016 through 2018, which “artificially depresses KDP's post-synergies earnings growth potential and wrongly weighs down on its valuation multiple,” Sharma wrote.
The analyst expects Keurig Dr Pepper’s beverage segments to achieve stronger EBIT growth, as Dr Pepper remains well-positioned primed to benefit from a favorable pricing and competitive environment and the non-carbonate brands are performing well.
He added that although allied brands contribute less than 6%of total sales, they should boost the company’s top-line.
Price Action
Shares of Keurig Dr Pepper were trading down 0.78% at $26.83 at the time of publishing on Wednesday.
Related Links
:Keurig Dr Pepper Reports Mixed Q2 Earnings, Reaffirms Guidance
Q2 Earnings Preview For Keurig Dr Pepper
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