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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