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.
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.
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.
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.”
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