Keurig Dr Pepper in the Buy Zone: It's Time to Build a Position
Keurig Dr Pepper’s (NASDAQ: KDP) Q3 price plunge was not unwarranted. Still, the fears that prompted it have largely been laid to rest, opening the door to significant share price gains alongside the high dividend yield. The company revealed a $7 billion investment from KKR and Apollo Global Management, affirming its planned acquisition of JDPEET, subsequent breakup, and overall operating strategy.
The money will be split, with $4 billion going to the Global Coffee Co., which will include JDEPEET, and the rest to Beverage Co., which will house Dr Pepper and other brands. To paraphrase the trio, the move allows each company to focus on its core business, enabling profitable growth and unlocking value.
As it stands, the combined company trades at less than 15x its current-year earnings compared to much higher valuations for beverage and consumer-staple competitors like Coca-Cola Company (NYSE: KO), PepsiCo (NASDAQ: PEP), and Nestle (OTCMKTS: NSRGY), which trade in a much higher range, from 19x at the low end for PepsiCo to nearly 23x for Coca-Cola.
The opportunity for each is to improve and accelerate earnings growth, a factor that will soon be priced into the market, potentially adding 25% to the stock price relative to the critical support target, with no other factors added. Factors, including the company’s Q3 outperformance and improved guidance, suggest the stock price rebound could be more vigorous.
Analysts Q3 Trends Set KDP Up for Vigorous Rebound
Analysts' caution, as reflected in lowered price targets, contributed to the Q3 sell-off in KDP shares. However, the data tracked by MarketBeat aligns with an outlook for vigorous share price increases, with revisions narrowing the range around the consensus, forecasting a 25% upside from the critical support target.
This provides a target for the market while it is in rebound mode, and the trend in revisions is likely to shift now that earnings and guidance are in. Analysts are likely to revert to a more bullish posture, including raising price targets, and lead the market to an above-consensus level.
Regardless of the analysts’ activity, institutional trends are robust. They buy shares at a pace of more than $2 for each $1 sold in each quarter of 2025, providing a solid support base and a strong market tailwind. The market for KDP stock is unlikely to fall below critical support targets in this scenario. It is likely to trend sideways if not rebound and reverse in preparation for a sustainable uptrend.
Keurig Dr Pepper Outperforms and Raises Guidance on Solid Beverage Demand
Keurig Dr Pepper had a solid quarter in Q3, with strength driven by volume, mix, pricing, organic sales, and acquisitions. The $4.31 billion in net revenue is up nearly 11%, outperforming the consensus by more than 350 basis points, and strength is expected to persist into the current quarter. Volume and mix contributed 6.4%, pricing increased by 4.2%, and acquisitions impacted the top line by 440 basis points.
Segmentally, U.S. Refreshment Beverages were the strongest, up 14.4% year-over-year, while International grew 10.5% and U.S. Coffee grew 1.5%.
The margin news is mixed. The company experienced a slightly stronger headwind than the MarketBeat consensus estimate anticipated, but the revenue strength offset the weakness. The takeaway is that adjusted earnings and free cash flow grew compared to the prior year—adjusted earnings by 6%—and are sufficient to sustain the company’s financial health and capital returns.
The capital return is primarily a dividend that annualizes to over 3.25% as of late October.
KDP Stock Hit Bottom, Rebound and Reversal Are Underway
KDP’s stock price sell-off hit bottom in October, and the rebound, which began before the Q3 release, gained momentum. The price action following the release revealed resistance at the 10-week high but cleared the critical support target, which is now a likely launch pad to higher price points.
The KDP market will take time to establish traction, so investors have time to build a position. The next few weeks or months may see this stock move sideways, but the longer-term outlook is improving, and a move up to the consensus near $35 is coming.
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