On Tuesday, Piper Sandler began coverage on Keurig Dr Pepper (NASDAQ:KDP) shares with a Neutral rating and a price target of $35.00, falling within the current analyst target range of $32.10 to $42.00. The firm expressed caution regarding the company’s prospects due to challenges in the coffee market.
According to InvestingPro data, the company currently trades at a P/E ratio of 18.8x and shows a FAIR overall financial health score. Keurig Dr Pepper is facing hurdles such as soft sales growth, rising costs for coffee beans, and uncertainty about passing these costs on to consumers.
Coffee bean prices have reached their highest levels in 47 years, which has impacted Keurig Dr Pepper’s cost structure. Despite these cost increases, the company has so far only implemented mid-single-digit price increases. While facing these pressures, the company maintains impressive gross profit margins of 55.7%, according to InvestingPro data. Piper Sandler’s analysis suggests that the recent spike in coffee bean prices has further pressured the company’s expenses.
The research firm, however, sees potential in the company’s partnership with Ghost, a sports nutrition brand. Piper Sandler believes that Ghost could contribute to Keurig Dr Pepper’s growth, similar to the way C4, another sports nutrition product, did by gaining approximately 1.2 percentage points of market share through Keurig Dr Pepper’s distribution network.
Piper Sandler’s price target is based on a projected 16.0 times price-to-earnings (P/E) multiple applied to Keurig Dr Pepper’s estimated earnings per share for the year 2026. This valuation reflects the firm’s current expectations for the company’s financial performance over the next several years. The company currently offers a dividend yield of 3%, having raised its dividend for four consecutive years.
For deeper insights into KDP’s valuation and growth prospects, investors can access the comprehensive Pro Research Report available on InvestingPro, which covers over 1,400 US stocks with detailed analysis and actionable intelligence.
In other recent news, Keurig Dr Pepper has been proactive with several significant developments.
The beverage company reported a 3.1% increase in constant currency net sales and a 3.5% growth in volume/mix for its third-quarter earnings in 2024. In addition, the company completed a $2.3 billion share sale, involving 69 million shares previously held by its major shareholder, JAB BevCo B.V.
Keurig Dr Pepper also announced the acquisition of a 60% stake in GHOST Lifestyle LLC, a move seen as a strategic diversification of its offerings. Deutsche Bank (ETR:DBKGn) upgraded the company’s stock from Hold to Buy, highlighting the company’s assertive investments in core Refreshment Beverage brands and promising partnerships with brands like Ghost, C4, and Electrolit.
Drew Panayiotou was appointed as the new Chief Marketing Officer for its U.S. Refreshment Beverages division, with a focus on strengthening digital marketing initiatives. RBC analysts also picked Keurig Dr Pepper as a top stock in the U.S. Beverages, Home, and Personal Care sectors, citing the company’s solid portfolio and growth from its Ghost acquisition.
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