- Truist Securities analyst Bill Chappell downgraded Keurig Dr Pepper Inc KDP from Hold to Sell and lowered the price target from $40 to $30.
- In the analyst’s view, the return to normal for the coffee systems business (~35% of sales) will place a drag on top and bottom line growth through 2023.
- He thinks the drag will occur due to lapping a two-year pandemic-related surge in the business and inflationary/recessionary conditions to slow the pace of incremental consumers.
- Also Read: Keurig Dr Pepper's Q3 Revenue Misses By A Whisker; Reaffirms FY22 Forecast
- Chappell believes that the company’s annual household penetration is giving investors a false sense of security, and the pandemic conditions over the past few years have made the metric less reliable.
- He has not seen any breakout of households added, from occasional to everyday user, which makes it very hard to forecast how impactful the incremental consumers will be to future K-cup sales.
- Hence the analyst does not believe household penetration is a good metric for the business.
- Even if the company is able to segment households added by usage, the analyst thinks it is extremely difficult to segment the household added during the pandemic, when most consumers were working from home for a long period of time.
- So, he wonders if the household penetration metrics may have been too optimistic for 2020, 2021, and 2022.
- In Q3, the company indicated that brewer shipments were down 15% Y/Y and are expected to improve in Q4.
- The analyst finds it difficult to see how the company will be able to grow K-cup volumes in 2023, especially in light of the potential for a U.S. recession in which consumers are trading down to lower-priced brewers and K-cups.
- Also, the coffee segment will face more difficult comparisons as it laps price increases taken in 2022.
- The analyst notes that it is best for investors to avoid this stock at least until the company provides 2023 guidance in early February.
- Price Action: KDP shares are trading lower by 1.85% at $38.82 on the last check Monday.
- Photo Via Company
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