Keurig Losing Buzz, Morgan Stanley Says In Downgrade

The buzz around single-serve coffee like the kind you make in a Keurig machine is wearing off, according to Morgan Stanley, which downgraded Keurig Dr Pepper Inc KDP Thursday. 

The Analyst

Dara Mohsenian downgraded Keurig Dr. Pepper from Equal-weight to Underweight and lowered the price target from $27 to $24.

The Thesis

KDP is trading at a premium price to its peers, but Morgan Stanley’s outlook is for below-peer sales growth, Mohsenian said.

Single-Serve Coffee Losing Buzz

Morgan Stanley is projecting long-term coffee revenue growth for the Keurig part of the business at about 1.5 percent below the overall market growth forecast of about 4 percent, the analyst said. 

The market penetration of single-serve coffee is already quite high at nearly 40 percent, and Morgan Stanley said its research shows that about 70 percent of those without a single-serve coffee maker either aren't interested or don't drink java. 

Price Action

Keurig Dr. Pepper shares were down 4.31 percent at $26.88 at the time of publication Thursday. 

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