Why Dr. Pepper Could Be a Good Investment As It Gains Ground Against Rivals

West Palm Beach, USA - March 29, 2011: Cross section view of multiple brands of soda in aluminum cans.
NoDerog / Getty Images

Dr. Pepper has long stood in the shadow of Coca-Cola and Pepsi in the soft-drink wars, and that’s not likely to change any time soon. Even so, some stock market experts say Keurig Dr Pepper’s (KDP) current valuation could make it a better short-term bet than either Coca-Cola or PepsiCo.

The Future of Finances: Gen Z & How They Relate to Money
Find: 5 Things You Must Do When Your Savings Reach $50,000

KDP’s stock currently trades near $36, which is down about 4% from the beginning of 2022. In the current market, that’s a decent performance. In contrast, the S&P 500 is down about 19% year-to-date and the Dow has fallen about 9%. But while Kuerig Dr. Pepper has performed well relative to the broader markets, it still lags behind Coca-Cola and PepsiCo, both of which have reported stock price gains in 2022.

One reason some analysts have a bullish outlook on KDP — whose current incarnation formed in 2018 following the merger of Keurig Green Mountain and Dr Pepper Snapple Group — is that its stock still has growth potential.

Analysts Suggest Dr. Pepper Has Room For Growth

Forbes puts KDP’s valuation at $40 a share, which represents a 10% upside from its current price. The company’s stock is trading at 19x forward expected earnings of $1.92 on a per-share and adjusted basis for 2023. That compares to an average of 20x over the past three years, implying that KDP’s stock “has some room for growth,” Forbes noted.

Building Wealth

Meanwhile, Seeking Alpha reported earlier this year that Keurig Dr Pepper trades at a “very clear discount” to beverage-industry peers such as Coca-Cola, Pepsi, Anheuser-Busch, Monster, Diageo and Constellation Brands. According to Seeking Alpha’s calculations at the time, KDP has a 15% peer-based analyst upside.

KDP has also put in a solid financial performance of late. It didn’t see “any significant” sales impact from the COVID-19 pandemic, Forbes noted, and that momentum has carried over into this year. For the first nine months of 2022, Keurig Dr Pepper logged a 10.4% year-over-year gain in sales.

The company’s operating margin climbed to 26% in 2021 from 21.3% in 2019, before the pandemic. However, inflation has cut into KDP’s margins this year, with its operating margin dipping to 16.8% over the last 12 months.

Dr. Pepper Gaining Market Share

In terms of market share, Dr. Pepper has been gaining ground on its rivals even in a flat soda market, CNN reported. Dr. Pepper grew its dollar share by 9% from 2003 to 2021 vs. a 26% drop in the overall carbonated soft drinks category overall, according to industry data cited by KDP. Dr. Pepper currently ranks as the fourth most popular soda in the country after Coke, Pepsi and Mountain Dew.

Building Wealth

Take Our Poll: Do You Think People Should Invest In Crypto?
More: 10 Coca-Cola Products You Can’t Buy Anymore

By volume, Coca-Cola controlled about 40% of the U.S. retail market in the first nine months of 2022, CNN noted. Next was PepsiCo with about 29% and Keurig Dr Pepper with about 25%, according to Beverage Digest. PepsiCo’s 2022 share fell by 1% from the previous year, while Keurig Dr Pepper’s share moved higher.

“Over the past 20 years, carbonated soft drinks have been declining in volume,” Beverage Digest editor Duane Stanford told CNN. “One of the bright spots… has been Dr Pepper.”

More From GOBankingRates

Share This Article:

facebook sharing button
twitter sharing button
linkedin sharing button
email sharing button
Building Wealth

About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
Learn More

BEFORE YOU GO

See Today's Best
Banking Offers

1pximage