Stifel Takes Neutral Stance On Newly Merged Keurig Dr Pepper

The merger of Dr Pepper Snapple and Keurig Green Mountain closed Monday and shares of Keurig Dr Pepper Inc. KDP began trading Tuesday. Stifel is taking a neutral stance on the newly combined company.

The Analyst

Stifel's Mark Swartzberg initiated coverage of Keurig Dr Pepper with a Hold rating and 12-month price target of $20.

The Thesis

The $20 price target implies a multiple contraction, since the stock is trading around $23.50. A 12.1 multiple is fair, as the company is unlikely to deliver the operating income growth targeted for Keurig Green Mountain, Swartzberg said in the Wednesday initiation note. (See the analyst's track record here.) 

Swartzberg had previously provided rationale for the neutral stance in a June 18 note on Dr Pepper Snapple.

The analyst's concerns include the decline of gross margins, net sales, gross profit and operating income in Keurig Green Mountain in the six months preceding March.

Stifel forecast higher packaging and logistics costs for Dr Pepper Snapple Group — the primary driver of the firm's downgrade in June.

The Price Action

Keurig Dr Pepper shares were trading 8.16 percent higher at the time of publication Wednesday at $24.03. 

Related Links:

Dr Pepper Snapple Downgraded On Stifel Stub Value Analysis

Mixed Drinks: Combined Keurig Dr Pepper Debuts On NYSE