Keurig Dr Pepper Has Appetite For More M&A, Says Analyst

  • Credit Suisse analyst Theo Brito reiterated a Neutral rating on the shares of Keurig Dr Pepper Inc KDP with a price target of $38.
  • Keurig reaffirmed EPS guide up 6-7% for ’23 and flattish in Q1. The analyst thinks currency has trended better, but coffee sales may be softer.
  • Keurig gained share in the last couple of years, helped by solid execution and investments in distribution, said the analyst.
  • The analyst added that momentum has carried into 2023 with successful flavor innovations such as Dr Pepper Strawberry Cream Soda driving growth.
  • The analyst sees further upside as marketing spending is restored toward pre-COVID levels.
  • In addition to carry-over pricing and lower cost pressures, productivity will play bigger role as supply challenges are behind.
  • With productivity building through the year, gross margin recovery will be back-half weighted, noted the analyst.
  • Increased mobility drove slower pod growth last year and seems to continue in 2023 due in part to warmer weather.
  • Though total coffee consumption is higher year-on-year, at-home consumption has declined, and the return to office not materialized—both of which are likely to weigh on Q1 sales.
  • The company is confident it can add another 2 million households, but the analyst is more skeptical given the challenging discretionary environment and still elevated brewer inventories.
  • The analyst said reinvesting in the business has yielded increased returns for Keurig.
  • With leverage expected to fall to 2.3x by year-end and free cash flow after dividends of $1.7 billion annually by the analyst’s math, the company has plenty of firepower for more M&A. 
  • Price Action: KDP shares are trading lower by 0.64% at $34.99 on the last check Tuesday.


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