Companies and Brands

Why This Analyst Sees Even More Upside for Keurig Dr Pepper After 70% Run

Chris Lange

Published: March 19, 2021 11:33 am

Keurig Dr Pepper Inc. (NASDAQ: KDP) made a handy gain to close out the week, after a prominent analyst issued an upgrade on the stock. While Keurig has benefited from the reopening trade lately, this analyst thinks it could go even higher.

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JPMorgan upgraded Keurig to Overweight from Neutral and issued a price target of $39, which implies upside of 15% from the most recent closing price of $33.89.

The firm noted that it remains cautious on the beverage and personal care segments, considering where they are in the interest rate cycle (bond proxy sectors). At the same time, most companies will face tough comparisons and higher commodities and transportation costs, as well as a catchup in marketing spending from the low advertising and promotion levels in 2020. Because these industries have been out of favor and underperforming for many years, valuation is more attractive relative to its own history and the S&P 500.

JPMorgan detailed in its report:

Broadly, we continue to favor stocks with higher beta to consumer mobility, high pricing power and lower exposure to commodity cost pressures.  Upgrading KDP to OW, Downgrading Both KMB and TAP to UW. We are upgrading Keurig Dr Pepper to Overweight from Neutral as we believe KDP’s double-digit EPS growth warrants further valuation re-rating (despite YTD outperformance, it is still trading at a discount to peers). Also, we are downgrading Molson Coors (TAP) and Kimberly Clark (KMB) to Underweight from Neutral despite their relative attractive valuation, as we believe consensus expectations do not reflect the commodities (in particular, pulp for KMB and aluminum for TAP) as well as transportation cost increases (for both). Also, TAP has faced a lot of disruption from the closure of its Texas brewery for 11 days, a cyber attack and longer-than-expected lockdowns in the UK that, while temporary, adds downside risk to its flat EBITDA guidance for 2021.

Excluding Friday’s move, Keurig Dr Pepper stock had underperformed the broad markets with a gain of only 6% year to date. In the past 52 weeks, the shar price was closer to 70% higher.

Keurig Dr Pepper stock traded up 1% on Friday to $34.23, in a 52-week range of $22.72 to $34.58. The consensus price target is $35.36.

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